Question

Normal No Spacing Heading 1 Heading 2 ... 1234 56 1. (5 pts) Which of the following is a TRUE statement about options? A. When an option is bought, it must be exercised prior to expiration B. When an option is bought, it must be exercised on the expiration date C. Calls must be exercised prior to expiration but puts do not have to be exercised D. Options do not have to be exercised ever 2. (5 pts) When you buy a CALL option, what does this give you? A. The right to buy a stock at a specific price B. The right to sell a stock at a specific price C. The right to negotiate the price of a stock D. The right to wait before you buy a stock 3. (5 pts) When you buy a PUT option, what does this give you? A. The right to buy a stock at a specific price B. The right to sell a stock at a specific price C. The right to negotiate the price of a stock D. The right to wait before you buy a stock Sec 1 Pages: 1 of 4 Words of 770 9 DA O SO' S OPS W2 MacBook Pro

Answer 1

1. True-

a. When an option is bought, it must be exercised prior to expiration.  

Explanation- It gives the option holder the right to purchase shares at the strike price prior to its expiration. A trader can buy or sell to close the position prior to expiration, If the option expires in the money, the option will be exercised. If the option expires out of the money, it becomes worthless, nothing happens. So the option contracts can be opened or closed at any given point prior to expiration.

2. A. Right to buy a stock at a specific price.

Call option is a derivative instrument which gives the trader a right to buy assets at a specific price on or before a particular date.

3. B. Right to sell a stock at a specific price.

Put option is a derivative instrument  which gives the trader a right to sell assets at a specific price on or before a particular date to the seller.