Question #79
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 37
Status: Unattempted
Correct Answer: A
Question
To create a synthetic short position in a stock, an investor can buy:
Answer Choices:
A. a call option on the stock and sell a put option on the stock
B. a put option on the stock and sell a call option on the stock
C. both a call option on the stock and a put option on the stock
Explanation
Buying a put option and writing a call option results in a payoff pattern similar to that of a
short position in the underlying stock.