Wednesday, July 22, 2009

Options Question

We haven't done a practice question on options lately:

Your investor informs you that his market sentiment is currently "bullish-neutral." If the investor is not risk averse, you would most likely recommend that he
A. write call options
B. purchase call options
C. write put options
D. purchase put options

EXPLANATION: when you see "bullish" in the question, you can pretty well eliminate "A" and "D," which are bearish strategies. There is nothing "neutral" about purchasing a call option--you purchase a call only because you think the stock is going up in a hurry. If you write a put, you make money if the stock rises (bullish) or stays the same (neutral), which is why the answer is to write put options.

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