Readers ask: Which Of The Following Can Be Used To Create A Long Position In A European Put Option On A Stock?

Which of the following describes a long position in an option?

32. Which of the following describes a long position in an option? A position that has been held for a long time Answer: CA long position is a position where an option has been purchased. It can be contrasted with a short position which is a position where an option has been sold.

Which of the following creates a bull spread?

Which of the following creates a bull spread? A bull spread is created by buying a low strike call and selling a high strike call. Alternatively, it can be created by buying a low strike put and selling a high strike put. 4.

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What is a European put option?

A European put option allows the holder to sell the underlying security at expiry. For an investor to profit from a put option, the stock’s price, at expiry, has to be trading far enough below the strike price to cover the cost of the option premium.

Which of the following describes a situation where an American put option on a stock becomes more likely to be exercised early?

As the volatility of the option decreases the time value declines and the option becomes more likely to be exercised early.

Which of the following describes a short position in an option?

A short position is a position where the option has been sold (the opposite to a long position ).

Which of the following describes a margin call?

A margin call occurs when the value of an investor’s margin account falls below the broker’s required amount. A margin call refers specifically to a broker’s demand that an investor deposit additional money or securities into the account so that it is brought up to the minimum value, known as the maintenance margin.

Is a call spread bullish?

A bull call spread is an options trading strategy designed to benefit from a stock’s limited increase in price. The strategy uses two call options to create a range consisting of a lower strike price and an upper strike price. The bullish call spread helps to limit losses of owning stock, but it also caps the gains.

What creates a bear spread?

A bear put spread consists of one long put with a higher strike price and one short put with a lower strike price. Both puts have the same underlying stock and the same expiration date. A bear put spread is established for a net debit (or net cost) and profits as the underlying stock declines in price.

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Which one of the following is a bear call spread?

A bear call spread is achieved by purchasing call options at a specific strike price while also selling the same number of calls with the same expiration date, but at a lower strike price. The maximum profit to be gained using this strategy is equal to the credit received when initiating the trade.

What is the difference between an American option and a European option?

The key difference between American and European options relates to when the options can be exercised: A European option may be exercised only at the expiration date of the option, i.e. at a single pre-defined point in time. An American option on the other hand may be exercised at any time before the expiration date.

Is a Put the same as a short?

With a short sale, an investor borrows shares from a broker and sells them on the market, hoping the price has decreased so they can buy them back at a lower cost. The buyer of a put option can pay a premium to have the right, but not the requirement, to sell a specific number of shares at an agreed-upon strike price.

How do you value a European put option?

What is the European Option?

  1. #1 – European Call Option.
  2. Pricing a European Call Option Formula.
  3. d1 = [ln(P/X) + (r+v2/2)t]/v √t.
  4. d2 = d1 – v √t.
  5. So the calculation of the price of the call option using the above table –
  6. Price of call = $4.08.
  7. Price of put = $1.16.

Which of the following is true an American call option on a stock should never be exercised early?

An American call option should never be exercised early when the underlying stock does not pay dividends. Second the insurance provided by the option (that the stock price will fall below the strike price) is lost.

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Which of the following best describes the intrinsic value of an option *?

The intrinsic value of an option is the value it would have if it were about the expire which is the same as the value in A.

When volatility increases with all else remaining the same which of the following is true?

3. When volatility increases with all else remaining the same, which of the following is true? Volatility increases the likelihood of a high payoff from either a call or a put option. The payoff can never be negative.

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