Which Option Strategy Is the Combination of a Long Call

question 12

Multiple Choice

Which option strategy is the combination of a long call with a low exercise price and a short call with a high exercise price?

• A)Buy and write
• B)Bull spread
• C)Bear spread
• D)Long straddle
• E)Short straddle

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Definitions:

Capital Structure

The mix of debt and equity financing a company uses to fund its operations and growth.

M&M Proposition II

Modigliani and Miller's Proposition II states that a company's cost of equity increases as it increases its leverage due to the risk premium on equity.

Debt-Equity Ratio

A financial ratio that measures the relative proportion of shareholders' equity and debt used to finance a company's assets.

Financial Risk

The chance of incurring a loss in capital in an investment or business operation.