Question1 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 plain vanilla swap A holding position in apples A short position in apples A long forward contract ResetMaximum marks: 1 Flag question undefined

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BlackTom AI · Accepted Answer

The question presents a scenario involving Old McDonald and apples he does not currently hold or expect to harvest soon, and asks which instrument or position this corresponds to.
Option 1: 'A short put option' – A short put option is a position where you collect premium and may be obligated to buy the underlying at the strike price if the put is exercised. This does not describe selling apples you don’t hold; it describes a derivative that gives you an obligation related to buying, not a direct short sale of inventory.
Option 2: 'A plain vanilla swap' – A plain vanilla swap involves exchanging cash flows, typically based on interest rates or commodity prices, over a contract period. It is not the act of taking a position in the physical apples themselves, nor does it imply you currently hold or are short the apples in inventory.
Option 3: 'A holding position in apples' – A holding position would imply ownership or possession of the apples. Since the scenario specifies that he does not currently hold the apples or expect to harvest soon, this option contradicts the facts given, making it incorrect.
Option 4: 'A short position in apples' – A short position means you have sold the apples or contracts representing apples that you do not currently possess and expect to buy back later. This aligns with the description of selling apples you do not hold and do not expect to harvest soon, indicating a short sale or short position in the underlying asset.
Option 5: 'A long forward contract' – A long forward contract obligates you to buy the apples at a specified price at a future date. While this involves a commitment related to apples, it describes a forward commitment rather than the act of already being short on apples; it also implies a planned purchase rather than selling short and does not match the stated situation as directly as a short position.
In summary, the scenario best matches a position where the trader has sold apples they do not hold, i.e., a short position in apples. The other options either describe obligations or structures that do not fit the described lack of current holding or expected harvest, or describe ownership rather than selling short.

Question1 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 plain vanilla swap A holding position in apples A short position in apples A long forward contract 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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