Series 9 Question of the Week

An investor establishes the following:

Short 700 ONST at 39.20

Short 7 ONST May 37.50 puts at 2.90

Which of the following are not false?

I. The investor has the potential for an unlimited gain

II. The investor’s potential loss exceeds their potential gain

III. The Investor is bearish

IV. The investor is fully hedged

A. I and IV

B. II and IV

C. II and III

D. III and IV

Correct Answer(s):

C. II and III

Explanation:

The investor is short stock and short puts so their potential loss far exceeds their potential gain. The investor is bearish and wants the stock to go down. The other statements are false.