Question

1. The Federal Reserve made the historic decision to buy corporate and municipal debt, including junk bonds. What’s a junk bond? Be specific.

2. Why are stock options so risky?

3.What is the most important thing to determine first on a price chart?

Answer 1

1. A junk bond is a bond with credit rating of BB or lower by S&P and 'Ba' by Moody's. Junk bonds have a very high yield because they are very risky.

2. Stock options are so risky because they are extremely volatile as compared to the index. The prices of stocks can vary significantly in either direction in a very short period of time. Hence, stock options are very risky.

3. The most important thing to determine first on a price chart is the trend. Taking an options position in the direction of the trend is safer than taking a position against the trend.