An investor is long stock at 675. The current market price of the stock is 682, it is anticipated the stock will continue to rise. If the investor would like to generate income, but limit how much can be made if the stock continues to rise, which of the following contracts would do that?A)sell a 95 callB)sell a 90 putC)buy a 95 callD)buy a 90 putsell a 95 call

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10-12-2022
Business

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An investor is long stock at 675. The current market price of the stock is 682, it is anticipated the stock will continue to rise. If the investor would like to generate income, but limit how much can be made if the stock continues to rise, which of the following contracts would do that?A)sell a 95 callB)sell a 90 putC)buy a 95 callD)buy a 90 putsell a 95 call

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Qwsun Qwsun · Answer 1 · 2022-12-23T16:38:47+01:00

If the stock continues to rise, then the investor contracts should a) sell a 95 call.

Selling options can be risky when the market turns negatively and there is no backup plan or hedge in place. Even while worst-case events are unlikely, it's still important to be prepared for them.

The danger of selling a call option is that the stock will climb endlessly without any upside protection to contain the loss. Call sellers therefore need to select when they will decide to decide to buy back an option contract.

But when selling a put, the risk is that the stock will decline, in which case the put seller will receive the premium and be obligated to buy the shares if it falls below the strike price of the option.

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