IN 421 Investments - Chapter 18 Homework

Questions:

6. You expect the price of a stock to decline but do not want to sell the stock short and run the risk that the price of the stock may rise dramatically. How could you use a bear spread strategy to take advantage of your expectation of a lower stock price?

7. You sell a stock short. How can you use an option to reduce your risk of loss should the price of the stock rise?

9. If you thought a stock was fairly valued and its price would not change, how could you use a straddle to take advantage of your valuation? If you follow this strategy and the stocks price does not remain stable, have you increased your risk exposure?