Why would anyone write an option, knowing that the gain from receiving the option premium is fixed,

Question:

Why would anyone write an option, knowing that the gain from receiving the option premium is fixed, but the loss, if the underlying price goes in the wrong direction, can be extremely large?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Multinational Business Finance

ISBN: 978-0132743464

13th edition

Authors: David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett

See More Books

Question Posted: Oct 13, 2015 06:21 AM

See More Questions

What are the major differences between short-term and long-term forecasts for a fixed exchange rate versus a floating exchange rate?
What were the main causes of Argentinas crisis of 20012002? What lessons were learned and what steps were taken to normalize Argentinas economy?
Infrastructure weakness was one of the causes of the emerging market crisis in Thailand in 1997. Define infrastructure weakness, and explain how it could affect a countrys exchange rate.
Vern Westby inherited a ticket from Anna Sjoblom, a survivor of the sinking of the Titanic, which had been pinned to the inside of her coat. He also inherited an album of postcards, some of which...
1. What are the qualifications for the job that should be considered for both applicants? 2. How should the discussion between the rooms division manager and Charles be handled? Make specific...
1. Is personality driven by nature or by nurture?
P 11-6 [Based on AICPA] Separate and consolidated financial statementsentity theory The individual and consolidated balance sheets and income statements of P and S Companies for the current year are...
Te September 30, 2015, records of Asher Communications include these accounts: Accounts Receivable.................................... $473,000 Allowance for Doubtful Accounts...............(15,100)...
Wu Company incurred $131,200 of fixed cost and $147,600 of variable cost when 3,600 units of product were made and sold. If the company's volume increases to 4,100 units, the total cost per unit will...
a). Which stock is safest for a diversified investor? b). Which stock is safest for an undiversified investor who puts all her funds in one of these stocks? c). Consider a portfolio with equal...
You have the same information as in question 4 above, except that the pricing is for a European option. What is different?
The emerging market crises of 1992002 were worsened because of rampant speculation. Do speculators cause such a crisis, or do they simply respond to market signals of weakness? How can a government...
Solve each quadratic equation (a) Graphically, (b) Numerically, and (c) Symbolically. Express graphical and numerical solutions to the nearest tenth when appropriate. 2x + 5x3=0
4. (7%) Problem 4: Consider a 570 nm light falling on a single slit of width 1.1 m. Randomized Variables =570 nm w=1.1 um Forbes, David david.forbes@doane.edu @theexpertta.com - tracking id:...
(b) The following results are obtained in a double-slit experiment using light from a helium-neon gas laser: Width of 15 fringes = 3.0 cm Separation of slits = 1.5 mm Slit-to-screen distance = 2.5 m...
Read the mini-case, Ben and Jerry's Corporate Activism, and answer the following question: What are the pros and cons of Ben and Jerry's political activism when compared to other corporate political...
TOPIC : PROBLEMATIZATION - SECOND CURVE THINKING 1. What is second curve thinking?( a More in depth explanation ) 2. What are the implicit assumptions of second curve thinking? ( a More in depth...
I think the Power Distance measure in Hofstede's model (Hofstede Insights, n.d.) is particularly interesting.I led divisions in the U.S., New Zealand, and Thailand.Those three countries represented a...
Sophia has four tickets to a concert. Six of her friends, Yolanda, Michael, Kevin, Marissa, Annie, and Katie, have all expressed an interest in going to the concert. Sophia decides to randomly select...
A Alkynes can be made by dehydrohalogenation of vinylic halides in a reaction that is essentially an E2 process. In studying the stereochemistry of this elimination, it was found that...
What is an alternative term to break even analysis?
The objective of both operating and transaction exposure management is to anticipate and influence the effect of unexpected changes in exchange rates on a firm's future cash flows. What strategic...
Why do you think Toyota had waited so long to move much of its manufacturing for European sales to Europe?
Market conditions have changed. Maria Gonzalez now estimates the risk-free rate to be 3.60%, the company's credit risk premium is 4.40%, the domestic beta is estimated at 1.05, the international beta...
Chapter 4 When an Auditor finds misstatements in entities financial statements which may be the result of fraudulent act, what should be the role of an auditor under that situation? (2 Points)
Suppose the following input prices are provided for each year: Required: $
A local bookstore is considering adding a coffee shop to their store. Building the coffee shop will cost $256,340.00 today. The bookstore is going to try this project for five years. The bookstore...

Why would anyone write an option, knowing that the gain from receiving the option premium is fixed,

Question:

Step by Step Answer:

From the option writers point of view only two events can take place The option is not exerc...View the full answer

Multinational Business Finance

Students also viewed these Cost Accounting questions