Question

_Melissa is in the same position as Meghan, i.e., she has made a lot of money for her clients being long AAPL at the right price. She feels the same way as Meghan regarding the direction of the stock and hence wouldn’t mind selling the stock at a price slightly higher than its current price. Wenjie should

a. write (sell) covered calls.

b. write (sell) naked calls.

c. buy puts.

d. buy calls.

e. more than one, but not all, of the above.

Answer 1

When Melissa feels that shares of Apple have gone higher and she is ready to sell it on higher prices she can do these things-

She can choose to buy put which is the option on selling of the shares

She can also sale call options which should be covered because uncovered call options writing can lead to unlimited losses.

So she should not be buying any call option and should not be selling any uncovered call option.

So she should do-

(a) write (sell) covered calls and (c) buy puts

So the correct answer would be -

option (E) more than one, but not all, of the above.