- CFA Exams
- CFA Level I Exam
- Topic 7. Derivatives
- Learning Module 55. Pricing and Valuation of Options
- Subject 2. Arbitrage and Replication
CFA Practice Question
An option investor takes a LONG position in the following call option:
Underlying asset: 100 shares of Microsoft stock
Exercise price: $60 per share
Premium: $7.63
Expiration date: November
B. he already had a SHORT position in an identical call option.
C. he already had a LONG position in an identical put option.
D. he already had a SHORT position in an identical put option.
Type of option: call option
Underlying asset: 100 shares of Microsoft stock
Exercise price: $60 per share
Premium: $7.63
Expiration date: November
This LONG call will close his option position if ______
A. he already had a LONG position in an identical call option.
B. he already had a SHORT position in an identical call option.
C. he already had a LONG position in an identical put option.
D. he already had a SHORT position in an identical put option.
Correct Answer: B
A LONG position combined with a SHORT position in an identical option leaves the investor with no option position. The two positions offset one another.
User Contributed Comments 6
| User | Comment |
|---|---|
| rickyagrawal | long position represents the buyer of the option whereas short positon represents the writer of the option |
| Done | Why could he not have a LONG position in an identical put option? |
| sunilcfa | that will not set off his obligation |
| aakash1108 | @ Done. If he takes a LONG position in an identical put option - he will open another "option" instead of closing a LONG CALL. ....hope this clears. |
| johntan1979 | Apples and oranges... |
| jonan203 | when you trade options you: buy to open sell to close sell to open buy to close or, in this case: sell call to open buy call to close |