You Expect a Sizable Jump in the Stock Price but Are

question 28

Multiple Choice

You expect a sizable jump in the stock price but are not sure of the direction in which the stock will go. Which of the following alternatives would be best?

• A) Buy call options.
• B) Buy put options.
• C) Sell a straddle.
• D) Buy a call and delta hedge it.

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Definitions:

Loss

The state of being deprived of or of being without something that one has had.

Warranted Inference

A logically justified conclusion based on available evidence or premises.

Fallacy

A mistaken belief, especially one based on unsound argument.

Valid Inference

A logical conclusion drawn from premises that are true, ensuring the conclusion is also true.