You are a speculator and you expect the price of the stock JP Morgan Chase to de
ID: 2619877 • Letter: Y
Question
You are a speculator and you expect the price of the stock JP Morgan Chase to decline in the near future. If your forecast is correct, what combination of options positions would help you realize the most profit?
A. Buy a call, buy a put
B. Sell a call, buy a put
C. Buy a call, sell a put
D. Sell a call, sell a put
Which of the following in not true of interest rate swaps?
A. Payments are based on notional principal to which interest rates are applied.
B. Contracts are more standardized than other derivatives.
C. Swap markets are characterized by over-the-counter trading.
D. All of the above are true.
Explanation / Answer
Question 1 - Option b
When you are bearish about a particular stock and expect its price to fall, you will take a long position in put option. A put option would give you the right to sell a stock at particular price which is higher than the actual market price during option expiration.
Further selling a call will help you earn call premium and bolster your return higher. With call option giving the buyer to buy the stock at a price lower than that of prevailing market price, but here it is expected that stock price would head lower. So call option would not be exercised by the buyer.
Question 2 - option B is answer
Interest rate swaps are traded over the counter and hence are les standardized as compared to futures which are traded over exchange.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.