Options can be used for speculation. If you believe that the spot price of T-bills is going to be much lower by next June, which of the following would be the best way to act on this belief? For simplicity, assume that the strike price and the spot price are about equal.
A)You could sell a put option
B)You could buy a put option.
C)You could buy a call option.
D)You could sell a call option.

Question

Quizplus · Accepted Answer

Buying a put option gives the holder the right to sell the underlying asset at a specified price within a specified time frame. If you believe the spot price of T-bills will decrease, buying a put option allows you to sell the T-bills at a higher price than the market price, thus capitalizing on the anticipated decrease.

Options Can Be Used for Speculation