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True or False: Your friend thinks that the stock price of KnowItAll Corp. will decline. He decides to write and sell an option without buying the stock. He says that he will buy the stock when his option buyer exercises the option. This is an example of a naked option. This statement is

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Answer:

True

Explanation:

In the case of naked options, the seller does not own any stock which is underlying Also the payoff related call option shows the difference between the price of the stock and the strike price

Therefore in the given situation, since he decides to write and sell without purchasing the stock but the purchased could be done when the option is exercised

So by the above explanation, the given statement is true

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