A trader who sells a right to sell an underlying asset at a pre-agreed price is described as having which of the following positions?

Select one:

a.A short put

b.A long call

c.A long put

d.A short call

A jewellery manufacturing company buys gold to make its products and faces a very competitive local market. The CEO is concerned that the price of gold has become more volatile and this may adversely affect profits in the near future. He wants to insure against uncertainty in the price of gold but pass on lower prices to his customers if the price moves favourably.

Which of the following hedge transactions is best suited to his needs?

Select one:

a.A long put on gold futures

b.A short put on gold futures

c.A long call on gold futures

d.A long gold futures contract

A European option giving the right to sell a stock at $100 sells for $5. Under what circumstance will the buyer of the option make a profit?

Select one:

a.When the stock price at maturity is less than $100

b.When the stock price at maturity is greater than $100

c.When the stock price at maturity is less than $95

d.When the stock price anytime up to maturity is less than $95

A call option on a stock S, with a strike price K equal to $20, trades before expiry at time-t out of the money at a premium of $2. Based on this information which of the following statements is TRUE?

Select one or more:

a.The intrinsic value is zero

b.The time value is $2

c.S(t)>K

d.S(t)

Writing options is riskier than buying options because the potential for losses is unlimited if the asset price falls more than expected.

Select one:

True

False