Question

A customer has a long stock position that has appreciated greatly in value. It is now October and the customer wants to protect the gain at no cost, but not be taxed until the next year. To achieve this, the customer could:_________

Answer 1

Answer:

B. sell a "deep in the money" European style call of the stock

Explanation:

The difference between an American style call and a European style call is that the American style can be exercised any time before the expiration date, while the European style call is only exercised at the date of expiration.

The customer in this question, has a pre-defined point in time when he wishes to exit his long stock postion. Therefore he is selling a "deep in the money" European style call of the stock