Question

Part A) Using options on an asset you don’t own is called:

A) speculation.

B) a naked position.

C) hedging.

D) a covered position.

Part B) You are short both a put option and a call option on Rockwood stock with the same expiration date. The exercise price of the call option is $40 and the exercise price of the put option is also $40. Graph the payoff of the combination of options at expiration.

Answer 1

A) Using options on an asset you don’t own is called: B) a naked position.

B)

Final payoff would be (payoff due on expiration- premium received at the time of option sold)