2. Why is writing a naked-cal option very risky? (find out first what a naked cal-is):3. Graph the profits and losses associated with writing a-call option on a security with astrike price of $60-and a premium of $5.4. Suppose that you own 100 -shares of the-company in which you just wrote the optionin previous question: If you puehased these shares at $50 what will your net profit/lossposition look like now over, say share prices from $40 to $80? Gonstruct a table-andgraph the situation:

Answered: 2. Why is writing a naked-call option…

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2. Why is writing a naked-call option very risky? (find out first what a naked call-is):

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Classification Of Risk

Risk means when there could be a possibility that the returns expected from a particular project or investment may or may not match the investor's expectations. In other words, the uncertainty of an income arising from a source that would either be lower than expected or result in losses in risk exposure of the project. The higher the risk involved, the higher is the return expected by the investor as the investor is exposed to a high level of risk. There are various methods by which different types of risk can be assessed and avoided or mitigated.

Question

2. Why is writing a naked-cal option very risky? (find out first what a naked cal-is):
3. Graph the profits and losses associated with writing a-call option on a security with a
strike price of $60-and a premium of $5.
4. Suppose that you own 100 -shares of the-company in which you just wrote the option
in previous question: If you puehased these shares at $50 what will your net profit/loss
position look like now over, say share prices from $40 to $80? Gonstruct a table-and
graph the situation:

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