Question

Steve has an option with a payoff profile that depicts a line that is constant at zero up until some point after which the line slopes downward. What type of action did Steve take to obtain this profile?
a. Purchased a call option
b. Purchased a put option
c. Sold a call option
d. Sold a put option
e. Purchased and simultaneously sold the same call option

Answer 1

Answer:

D) Sold a call option

Explanation:

From the question, we are informed about Steve, who has an option with a payoff profile that depicts a line that is constant at zero up until some point after which the line slopes downward. In this case the type of action did Steve take to obtain this profile is Sold a call option.

a call option can be regarded as a kind of derivatives contract that enable the a call option for those that want to purchase stock or financial instrument the right to buy it at a specific price but not obligation. When a call option is sold, then the buyer is given the opportunity to buy the stock at a particular price with expeiration. The price is known as "strike price".