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20.Which of the following can be used to create a long position in a European put option on a stock?
A.Buy a call option on the stock and buy the stock
B.Buy a call on the stock and short the stock
C.Sell a call option on the stock and buy the stock
D.Sell a call option on the stock and sell the stock
A.Buy a call option on the stock and buy the stock
B.Buy a call on the stock and short the stock
C.Sell a call option on the stock and buy the stock
D.Sell a call option on the stock and sell the stock
Answer: B
As payoff diagrams show a call on a stock combined with a short position in the stock gives a payoff similar to a put option. Alternatively we can use put-call parity, which shows that a call minus the stock equals the put minus the present value of the strike price.
As payoff diagrams show a call on a stock combined with a short position in the stock gives a payoff similar to a put option. Alternatively we can use put-call parity, which shows that a call minus the stock equals the put minus the present value of the strike price.
Flashcard info:
Author: CoboCards-User
Main topic: Finance & Investment
Topic: Derivatives
Published: 27.10.2015