Options

Question 1

What is the difference between naked writing and covered writing

Answer 1

Naked writing is when you are selling an option without ownership of the underlying asset. Covered writing is when you own that underlying asset

Question 2

What is a floor?

Answer 2

It is the minimum selling price for a stock

= Stock + Put

Question 3

What is a cap ?

Answer 3

It is the maximum purchasing price for a stock

=Call- Stock

Question 4

What is a covered put?

Answer 4

= - floor

= - Stock - Put

Question 5

What is a covered call?

Answer 5

= - cap

= -Call + Stock

Question 6

Which of the following options is/are path-dependent?

Asian option
Barrier option
Gap option
Compound option
A
I only

B
II only

C
I and II only

D
I, II, and III only

E
II, III, and IV only

Answer 6

C
I and II only

Asian and Barrier