Asked by Mikayla Pearson on Jul 17, 2024
Verified
You believe the price of a stock is going to decline within the next three months. Which one of the following option payoff profiles will reflect a profit if your belief is correct?
A) Buying a call.
B) Selling a call.
C) Buying a put.
D) Selling a put.
E) None of these.
Option Payoff Profiles
Graphical representations showing the potential profit or loss of an option strategy at various underlying asset prices at expiration.
Buying A Call
Involves purchasing a call option, giving the buyer the right, but not the obligation, to buy a specific asset at a predetermined price within a specified time frame.
Selling A Call
A strategy in options trading where the seller of the call option is obligated to sell the underlying asset at a specified price if the option is exercised.
- Comprehend the processes and benefits involved with call and put options.
Verified Answer
HC
hannah carpenterJul 24, 2024
Final Answer :
C
Explanation :
Buying a put option gives the holder the right, but not the obligation, to sell a stock at a specified price (strike price) before a specified date (expiration date). If the stock price declines below the strike price, the put option becomes profitable because it allows the holder to sell the stock at a higher price than the current market price.
Learning Objectives
- Comprehend the processes and benefits involved with call and put options.