If you thought prices of stock would be rising over the next few months you may wish to __________________ on the stock.
A) purchase a call option
B) purchase a put option
C) sell a futures contract
D) place a short sale order

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy the stock at a fixed price (strike price) within a certain time period. If the stock price does indeed rise, the holder can exercise the option and buy the stock at the lower strike price, making a profit. A put option is the opposite, giving the holder the right to sell at a fixed price, which would not be beneficial if the stock price is rising. Selling a futures contract or placing a short sale order would also not be advantageous if expecting the stock price to rise.

If You Thought Prices of Stock Would Be Rising Over