In a Covered Option Strategy:
A)one Option Is Issued or Bought

question 10

Multiple Choice

In a covered option strategy:

• A)one option is issued or bought per unit of the asset or liability generating the risk exposure.
• B)the option's delta (\(\Delta\))is first calculated and then options in the quantity 1/\(\Delta\) are issued or bought per unit of the asset or liability.
• C)a call option is bought and a put option is written to hedge risk.
• D)the risk of a call option is covered by buying or selling a put option.

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Definitions:

Financial Decision Maker

An individual or group responsible for making investment, financing, and dividend decisions within an organization.

Expected NPV

Projected Net Present Value; an estimation of a project's current value based on expected future cash flows discounted at the project's cost of capital.

Efficient Market

A financial market theory suggesting that asset prices fully reflect all available information, making it impossible to consistently achieve higher than average returns.

Insider Trading Laws

Regulations that prohibit the trading of a company's stocks or other securities by individuals with access to non-public, material information about the company.