Question

Which of the following accurately describes a(the) characteristic(s) associated with the payoff of a trader who...

Which of the following accurately describes a(the) characteristic(s) associated with the payoff of a trader who went short on a call option on copper (on a per ton basis)?

As the market price per ton of copper goes up, the trader’s payoff increases
As the market price per ton of copper goes up, the trader’s payoff decreases
The trader’s payoff is unbounded (that is, it has no dollar limit)
Group of answer choices

a.More than one of statements I, II, and III is correct

b.Statement II. is correct

c.Statement I. is correct

d.Statement III. is correct

e.None of statements I, II, or III is correct

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

a.More than one of statements I, II, and III is correct

The trader has shorted a call option. This means that the trader has sold the right to buy copper at the strike price of the option.

Statement I is incorrect. The trader has sold the right to buy copper at the strike price of the option. If the price of copper goes up, the option buyer will exercise the option, and the trader will have a loss.

Statement II is correct. The trader has sold the right to buy copper at the strike price of the option. If the price of copper goes up, the option buyer will exercise the option, and the trader will have a loss.

Statement II is correct. The trader has sold the right to buy copper at the strike price of the option. There is no theoretical limit to the increase in the price of copper. Therefore, the trader's potential loss is unlimited.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1) Which one of the following best describes a broker? intermediary who arranges trades between buyers...
1) Which one of the following best describes a broker? intermediary who arranges trades between buyers and sellers trader who buys and sells from their own inventory person who buys securities for his or her own account on an exchange floor trader who transacts business on behalf of a securities issuer 2) Over-the-counter market activity is reflected in the Nasdaq index. True False 3) Marcus just placed a stop limit order to buy 100 shares at $20 stop, $25 limit....
QUESTION 29 Which of the following are TRUE statements regarding civil penalties that may be imposed...
QUESTION 29 Which of the following are TRUE statements regarding civil penalties that may be imposed for insider trading violations? I. Civil penalties may be imposed only on registered persons. II. The civil penalty may be up to three times the profit gained or the loss avoided on an illegal transaction. III. A broker/dealer may be held liable if one of its registered reps was not properly supervised while committing an insider trading violation. IV. The violation is defined as...
1. Consider the following supply schedules for Kelby, Jack, and Kate, who are the only suppliers...
1. Consider the following supply schedules for Kelby, Jack, and Kate, who are the only suppliers in the market for Good Y:     Kelby   Jack   Kate Price   Units Produced $5   12   8   4 $4   11   6   3 $3   9   4   2 $2   5   2   1 $1   2   1   0 If the market sees 15 units of Good Y exchanged, what is the likeliest price in the market? A. $1 B. $2 C. $3 D. $4 E. $5 2. Given that...
1. Which is statement is true? I. A single-price monopolist charges a price equal to the...
1. Which is statement is true? I. A single-price monopolist charges a price equal to the marginal cost of the last unit sold. II. A monopolist with positive marginal costs and facing a linear demand curve always sets a quantity (or price) such that it sells on the elastic section of the demand curve. III. A monopolist regulated by marginal-cost pricing regulation sells at a price that covers its variable and fixed costs of production, but it still causes a...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary...
Please answer the following Case analysis questions 1-How is New Balance performing compared to its primary rivals? How will the acquisition of Reebok by Adidas impact the structure of the athletic shoe industry? Is this likely to be favorable or unfavorable for New Balance? 2- What issues does New Balance management need to address? 3-What recommendations would you make to New Balance Management? What does New Balance need to do to continue to be successful? Should management continue to invest...
What role could the governance of ethics have played if it had been in existence in...
What role could the governance of ethics have played if it had been in existence in the organization? Assess the leadership of Enron from an ethical perspective. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among the top Fortune 500 companies, collapsed in 2001 under a mountain of debt...
Discuss ethical issues that can be identified in this case and the mode of managing ethics...
Discuss ethical issues that can be identified in this case and the mode of managing ethics Enron finds itself in this case. How would you describe the ethical culture and levels of trust at Enron? Provide reasons for your assessment. THE FALL OF ENRON: A STAKEHOLDER FAILURE Once upon a time, there was a gleaming headquarters office tower in Houston, with a giant tilted "£"' in front, slowly revolving in the Texas sun. The Enron Corporation, which once ranked among...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT