The profits on a derivatives position are fixed when a bond's price falls below a certain point,but above that point the profits fall when the bond price rises. This profit profile fits which of the following positions?

Question

Quizplus · Accepted Answer

A written call option fits this profit profile because the writer (seller) of the call option has a fixed profit when the bond's price is below the strike price (since the option is not exercised), but above that point, as the bond price rises, the profits for the call writer decrease because they have to sell the bond at the strike price, which is lower than the market price.

The Profits on a Derivatives Position Are Fixed When a Bond's