Question10 Old McDonald has sold apples that he does not currently hold or expect to harvest anytime soon. He has entered into a: A short put option A long forward contract A short position in apples A plain vanilla swap A holding position in apples ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

The scenario describes Old McDonald selling apples that he does not currently hold or expect to harvest soon. This is characteristic of taking a short position in the apples, i.e., agreeing to deliver apples in the future without owning them now.
Option 1: 'A short put option' would involve selling a put option, which creates an obligation to buy apples at a strike price if the option is exercised by the holder. This does not describe selling apples now or a short exposure to the physical apples themselves, so it is not correct.
Option 2: 'A long forward contract' implies a commitment to buy apples at a future date for a predetermined price. That represents a long exposure to apples, not a position where one has sold apples they do not hold. Thus this option is incorrect for the described situation.
Option 3: 'A short position in apples' directly corresponds to selling apples not currently held and not expecting to harvest soon, creating a short exposure to the commodity. This matches the scenario precisely.
Option 4: 'A plain vanilla swap' involves exchanging cash flows, typically based on price or rate differences, and does not by itself represent a position in physically selling apples in the market. It is not the described action.
Option 5: 'A holding position in apples' would mean currently possessing apples, which contradicts the statement that he does not hold them and does not expect to harvest soon. Hence this is incorrect.

Question10 Old McDonald has sold apples that he does not currently hold or expect to harvest anytime soon. He has entered into a: A short put option A long forward contract A short position in apples A plain vanilla swap A holding position in apples ResetMaximum marks: 1 Flag question undefined

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Assume you sell short 100 shares of common stock at $30 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $35 per share? The stock paid no dividends during the period, and assume no other transaction costs.

Shorting a stock, where you only make money if the stock goes down, has never been a successful investment strategy, based on the case studies we reviewed in class.

How does a short seller "cover" a short?

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