You Anticipate That Volatility Will Increase Sharply and the Stock

question 19

Multiple Choice

You anticipate that volatility will increase sharply and the stock price will fall. Select the most profitable of the following portfolios to hold, given your views:

• A) Long stock and long calls.
• B) Short stock and long puts.
• C) Long calls and short puts.
• D) Short stock and short calls.

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Definitions:

Pretax Income

The amount of income earned by a business before taxes have been deducted.

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.

Inventory Error

Mistakes in counting or valuing inventory that can result in incorrect financial statements.

Discrepancy

A difference or inconsistency found when comparing two or more items, figures, or documents.