In Order to Closeout an Unprofitable Position on a Short

question 117

Multiple Choice

In order to closeout an unprofitable position on a short put, the option trader would:

• A)buy puts with the same expiry date and exercise price
• B)sell puts with the same expiry date and exercise price
• C)buy calls with the same expiry date and exercise price
• D)sell calls with the same expiry date and exercise price.
• E)Short option positions must be maintained until expiry.

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Definitions:

John Nash

An American mathematician known for his pioneering work in game theory, and the Nobel laureate in Economic Sciences.

Nash Equilibrium

A concept in game theory where each player's strategy is optimal given the strategies of all other players, and no player has anything to gain by changing only their own strategy.

Simultaneous Pricing Game

A strategic game in which multiple sellers set prices for their products at the same time, considering the potential reactions of competitors.

Best Response

A strategy that produces the most favorable outcome for a player, given other players' strategies in a game.