Assume the stock price is $50, a call option on that stock has a premium of $5, a put option on that stock has a premium of $3, the strike price on both options is $50, and you presently hold no position in the three. Suppose you take one of the following positions and the stock price drops to $47 per share. Which position would have gained the most dollars?
A) Writing a naked call
B) Writing a covered call
C) Writing a fiduciary put
D) Selling the stock short

Question

Assume the stock price is $50, a call option on that stock has a premium of $5, a put option on that stock has a premium of $3, the strike price on both options is $50, and you presently hold no position in the three. Suppose you take one of the following positions and the stock price drops to $47 per share. Which position would have gained the most dollars?
A) Writing a naked call
B) Writing a covered call
C) Writing a fiduciary put
D) Selling the stock short

Quizplus · Accepted Answer

Writing a naked call would gain the most because the call option would expire worthless, allowing you to keep the $5 premium without any obligation to deliver the stock.

Assume the Stock Price Is $50, a Call Option on That