Using Derivatives to Infer Market Expectations

Of the CFO's statements to the board of MGM, the _most accurate_ is the one regarding:

Incorrect. A covered call strategy won't provide downside protection, but will it sell call options to help offset its initial upfront costs.

Absolutely. Clearinghouses exist in many options markets to ensure that collateral or guarantees are put in place to eliminate counterparty risk. (Note, however, that OTC contracts may not necessarily utilize a clearinghouse.)

Incorrect. Although the options may be traded in liquid markets, the price of the options will change in relation to the price of the underlying BT stock, which could potentially increase or decrease the cost of rolling those options. This is known as delta.

covered calls.

the use of a clearinghouse.

the ongoing cost of MGM's options strategy.