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Management · Q535

International Finance and Treasury

Graduate and Post Graduate · Management · question 535

Q535

Consider call option writing, probability that a buyer would have positive payoff increases with the

A.
increase in stock price
B.
decrease in stock price
Answer
C.
increase in maturity duration
D.
decrease in maturity duration

Answer: Option B

Solution

Answer: Option B
Solution:
Considering call option writing, probability that a buyer would have positive payoff increases with the decrease in stock price. Writing a call option means that you are selling a call option. If you sell a call (also know as a "short call") then you are obliged to sell stock at the strike price.