The Combination of a Position in a Covered Call and a Position

question 12

Multiple Choice

The combination of a position in a covered call and a position in a protective put on a stock index (where the options have the same strike and maturity) is similar to:

• A) A leveraged long position in the stock.
• B) A leveraged short position in the stock.
• C) A long position in a balanced index fund (i.e., long stock and long investment at the risk-free rate).
• D) A short position in a balanced index fund. (i.e., short stock and borrowing at the risk-free rate).

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Definitions:

Successive Approximations

A technique used in behaviorist psychology, involving the reinforcement of behaviors that are increasingly similar to the desired behavior.

Operant Conditioning

A method of behavior modification where the intensity of an action is influenced by positive or negative reinforcement.

Shaping

A method of positive reinforcement of behavior patterns in operant conditioning.

Simpler Response

A basic or more straightforward reaction or answer to a stimulus or question, often requiring less cognitive or emotional effort.