10 Questions
In a short call option position, what is the seller's loss if the spot price closes above the strike price?
$ST - K$
What is the pay-off for the buyer of a long call option if the closing spot price is below the strike price at expiry?
Zero profit
What is the pay-off for the buyer of a long put option if the closing spot price is above the strike price at expiry?
Zero profit
For a long put option, when does the option buyer make a profit?
Spot price is lower than strike price
In a short put option position, what is the seller's loss if the spot price closes below the strike price?
$K - ST$
What does the short position in a put option involve?
Selling an option expecting the stock price to fall
In a long call option, when does the option buyer make profit?
Spot price is higher than strike price
What is the pay-off for a long call option buyer if the closing spot price is equal to the strike price at expiry?
$0$
What happens to a long put option buyer if the spot price is equal to the strike price at expiry?
$0$
What defines a long position in an option?
Buying an asset with delayed delivery
Explore strategies and payout variations involved in trading options as outlined in Chapter 5. Learn about the different roles of option buyers and sellers, and how to use options to enhance investment returns.
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