If you expect the euro to depreciate, it would be appropriate to ____ for speculative purposes.
A) buy a euro call and buy a euro put
B) buy a euro call and sell a euro put
C) sell a euro call and sell a euro put
D) sell a euro call and buy a euro put

Question

Quizplus · Accepted Answer

Selling a euro call and buying a euro put is known as a bearish strategy, where the investor expects the euro to depreciate. By selling a euro call, the investor receives a premium as they are selling the right to buy euros at a certain price. By buying a euro put, the investor gains the right to sell euros at a certain price, which will be profitable if the euro depreciates below that price. Therefore, option D is the most appropriate choice for speculative purposes if an investor expects the euro to depreciate.

If You Expect the Euro to Depreciate, It Would Be