Chapter 06 · Section 6.1

Price Fluctuations

Options permit the trader to establish long or short positions that allow him to take advantage of future price fluctuations while minimizing the outlay of capital.
To profit from the purchase of a call option, a trader must not only correctly predict an increase in the price of the underlying asset, but also:

a) the magnitude of the price increase.
b) the timing of the price increase.
• c) the direction of the market overall.
  No. If overall market prices are moving upwards but the price of the underlying asset is stable or declining, the trader will not profit.
  d) an increase in the interest rate.

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