Question13 Which options would make profits in a falling market?(i) Buying a call option written on live cattle(ii) Selling a call option written on the S&P500 index(iii) Buying a put option written on Tesla stock(iv) Selling a put option written on Bitcoin (iii) and (iv) (i) and (ii) (i) and (iii) (ii) and (iii) (ii) and (iv) ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

In a falling market, profit opportunities come from strategies that benefit from declining prices or from collecting premiums when the market moves unfavorably for the buyer of options.
Option (i): Buying a call option written on live cattle. A call option increases in value when the underlying asset rises. In a falling market, the underlying price tends to decrease, reducing the likelihood that the call finishes in-the-money, so this strategy generally loses value.
Option (ii): Selling a call option written on the S&P500 index. The seller collects the option premium upfront, and if the market falls or remains flat, the call is less likely to be exercised and may expire worthless, allowing the seller to keep the premium. This is a favorable setup in a falling market, though upside risk exists if the market unexpectedly rallies.
Option (iii): Buying a put option written on Tesla stock. A put gains when the underlying stock price declines, providing a direct profit channel in a falling market. The put price increases with drop in Tesla’s price, potentially yielding gains for the buyer.
Option (iv): Selling a put option written on Bitcoin. Selling puts commits the seller to buying the asset at the strike price if the option is exercised. In a falling market, Bitcoin’s price is more likely to experience declines and trigger assignments, making this a risky and potentially loss-incurring position for the seller rather than a profit driver.
When evaluating which statements would produce profits in a falling market, the bear case for writing calls (ii) and the bear/bullish-on-downside nature of puts (iii) align with profit opportunities under decline, whereas buying calls (i) and selling puts on a highly volatile asset like Bitcoin (iv) carry elevated risk or reduced profitability in broadly falling conditions.
 Combining these insights, the pair that corresponds to profitable scenarios in a falling market comprises (ii) and (iii).

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Question9 Selling an option giving the right but not the obligation to sell a currency at a fixed rate is a: Select one alternative: A) Long Call option B) Long Put option C) Short Call option D) Short Put option ResetMaximum marks: 1 Flag question undefined

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