Chartered Financial Analyst Level 1
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An investor writes a put option on FTSE 100 Index futures. Which of the following best describes the investor's position with respect to the put contract and her exposure to the underlying index future, respectively?
An investor writes a put option on FTSE 100 Index futures. Which of the following best describes the investor's position with respect to the put contract and her exposure to the underlying index future, respectively?
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Explanation:
Explanation:
The correct answer is B (Short, long).
- The investor has written (sold) a put option, which means she is short the put contract. This obligates her to purchase the underlying asset if the option is exercised.
- Her exposure to the underlying index future is long because she benefits when the quoted price of the index future increases (or suffers a loss when it decreases).
Why not A or C?
- A (Long, short): Incorrect because the investor is short the put contract, not long. Additionally, her exposure to the underlying index future is long, not short.
- C (Short, short): Incorrect because while the investor is short the put contract, her exposure to the underlying index future is long, not short.