Question

What options trading position would be the most beneficial to have for each market condition given...

What options trading position would be the most beneficial to have for each market condition given below.

  

A strike price (K) of $75 and a stock price of $95.

A strike price (K) of $255 and a stock price of $175.

  

A stock price of $20 and a strike price (K) of $50.

A stock price of $175 and a strike price (K) of $105.

a.

Long call

b.

Long put

c.

Short call

d.

Short put

Homework Answers

Answer #1

Call option is the right to buy the underlying stock at a specified price on a future date

Put option is the right to sell the underlying stock at a specified price on a future date

Long means to buy and short means to sell

Beneficial positions are as follows:

A strike price (K) of $75 and a stock price of $95.- a.Long Call (i.e. Right to buy at $75) or Short Put

A strike price (K) of $255 and a stock price of $175. - b.Long put (right to sell at $225) or Short call

A stock price of $20 and a strike price (K) of $50 - a.Long Put or Short Call

A stock price of $175 and a strike price (K) of $105. - Long call of Short Put

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