Question

(TCO I)  In a bear market, which option positions make money?

I. Buying a call

II. Writing a call

III . Buying a put

IV. Writing a put

I and II

I and III

I and IV

II and III

I and IV

Answer 1

In a Bear market, price is expected to fall. Therefore, if the spot price is less than the strike price of underlying asset,investor will gain the profit.

1. Buying a call: if the spot price is higher than strike price of underlying asset, then investor will gain the profit. It is a sign of Bull market.

2. Writing a call: if the spot price is less than the strike price of underlying asset, then investor will gain the profit. It is a sign of bear market.

3. Buying a put: if the spot price is less than the strike price of underlying asset, then investor will gain the profit. It ia sign of bear market.

4. writing a put: if the spot price is more than the strike price of underlying asset, then investor will gain the profit. It is a sign of bull market.

Therefore, in a bear market- writing a call and buying a put option positions make money.