What Is the Disadvantage of a Strategy of Rolling Over

question 2

Multiple Choice

What is the disadvantage of a strategy of rolling over a covered call to avoid exercise?

• A)the call premium is essentially thrown away
• B)transaction costs tend to be high
• C)the stock will incur losses
• D)the call is more expensive when rolled over
• E)none of the above

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Definitions:

Elastic Demands

A situation where the demand for a good or service significantly changes in response to changes in its price.

Close Substitutes

Products or services that can easily replace each other in the eyes of the consumer, offering similar benefits and functionalities.

Inelastic

A term describing a situation in which the quantity demanded or supplied of a good or service is relatively unresponsive to changes in price.

Elastic

Describes a situation in which the demand for a good or service significantly changes in response to changes in price.