CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

An option investor takes a LONG position in the following call 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
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