The Common Stock of the Avalon Corporation Has Been Trading

question 61

Multiple Choice

The common stock of the Avalon Corporation has been trading in a narrow range around $40 per share for months, and you believe it is going to stay in that range for the next three months. The price of a three-month put option with an exercise price of $40 is $3, and a call with the same expiration date and exercise price sells for $4.
-What would be a simple options strategy using a put and a call to exploit your conviction about the stock price's future movement?

• A) Sell a call
• B) Purchase a put
• C) Sell a straddle
• D) Buy a straddle

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Definitions:

Internal Characteristics

The innate or inherent traits, qualities, or attributes of an individual or entity, often distinguishing them from others.

Dependency Theorist

A scholar who advocates for the dependency theory, which suggests that economic conditions in poorer countries are largely the result of exploitative policies and practices by wealthier nations.

Multinational Corporations

Large companies that operate and have subsidiaries in several countries around the world, extending their influence across national borders.

Dependency Theory

A theory suggesting that the economic growth of developing countries is hindered by their dependence on developed countries, leading to unequal international relations.