This week’s study question from the Solomon Online Exam Simulator question database is now available.
Question (Relevant to the Series 7, Series 62, Series 65, and Series 66):
An investor wishing to hedge a short position AND put a little extra cash in his pocket at the same time will…
Answers:
A. Buy calls on the stock
B. Buy puts on the stock
C. Sell calls on the stock
D. Sell puts on the stock
Correct Answer: D. Sell puts on the stock
Rationale: Short sellers are bears; thus, they need to take a bullish position to hedge a short one. This can be done by buying calls or selling puts. Buying calls, however, takes money OUT of your pocket, while selling puts puts money IN your pocket.
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