Suitability- Options

Question 1

Long option

Answer 1

Speculative growth

Suitable for aggressive investors

High risk tolerance

Question 2

Short uncovered option

Answer 2

Speculative Income

Suitable for aggressive investors

Very high risk tolerance

Question 3

Hedging strategy

Answer 3

long stock & long put
short stock & long call

Option provides protection
Must be long the option to hedge

Suitability depends on position the option covers

Risk tolerance varies

Note: could also use a stop order as a hedge, but less flexibility than with a long option

Question 4

Covered call

Answer 4

short call & -long stock
-long call
-rights or warrants
-convertible securities

Provides income in flat/neutral mkt

Suitable for virtually all investors of the stock position is appropriate

Risk tolerance depends on stock position

Question 5

Covered put

Answer 5

short put & -short shares
-long put
-cash

Provides income in flat/ neutral mkt

Very high risk tolerance

Question 6

Long straddle

Answer 6

Speculative growth in volatile mkt
you’re in control when you own the option

Suitable for aggressive investors

High risk tolerance

Question 7

Short straddle

Answer 7

Speculative Income in flat/neutral mkt
you’re along for the ride, want smooth (flat) ⛵️ waters

Suitable for aggressive investors

Very high risk tolerance

Question 8

Spread

Answer 8

Objective depends on dominant leg

Suitable for aggressive investors

Moderate to high risk tolerance