What consequence do gains in the underlying assets have when a short derivative position is held?
Understand the Problem
The question is asking about the impact of gains in the underlying assets on a short derivative position, exploring potential outcomes related to profits and losses.
Answer
Losses when underlying assets increase in value.
Short derivative positions lead to losses when the underlying assets increase in value.
Answer for screen readers
Short derivative positions lead to losses when the underlying assets increase in value.
More Information
When holding a short derivative position, you benefit from a decline in the underlying asset's value. Conversely, if the underlying asset's price rises, it results in losses.
Tips
Common mistakes include confusing short positions with hedging strategies that might involve both long and short positions.
Sources
- Short Position: Meaning, Overview, and Example - Investopedia - investopedia.com
- Short (finance) - Wikipedia - en.wikipedia.org
- Short Put - Definition, How it Works, Risks - Corporate Finance Institute - corporatefinanceinstitute.com
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