Question

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

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