Question

27. The writer (seller) of a put option a. agrees to sell shares at a set price if the option holder desires b. agrees to buy shares at a set price if the option holder desires c. has the right to buy shares at a set price d. has the right to spl shares at a set price 17. A call option is said to be "in-the-money" if a. the stock price (i.e. the underlying asset) is greater than the exercise (strike) price. b. the stock price (i.e. the underlying asset) is less than the exercise (strike) price. c. the stock price (i.e. the underlying asset) is equal to the exercise (strike) price. d. the call option buyer withdraws cash from his or her bank. A farmer who wants to lock in a price for next year's harvest would a futures contract. sell b. buy scalp d. a. c. reverse 3. option gives the owner the right to sell a particular good at a specified Ownership of a price. a. call b. forward C. silly d. put

Answer 1

27. The writer (seller) of Put option: B. agrees to buy shares at a set price if the option holder desires. Explanation: Put option writer has an obligation to buy the shares at a predetermined price. Whereas, put option buyer has the right to sell the shares at set price. Buyer may or may not exercise option based on spot price movement. 17. A call option is said to be in-the-money if: A. the stock price (i.e. underlying asset) is greater than the exercise (strike) price. Explanation: Call option buyer has right to buy the stock at set price. Intrinsic value of call option = Spot price - Exercise price. When stock price is greater than strike price then call option has positive intrinsic value and it is in the money. Stock price <strike price, out of money Stock price = Strike price, at the money 7. A farmer who wants to lock in a price for next year's harvest would sell a future contract. Answer - A. Sell Buyer of future takes obligation to buy the asset at expiry date at predetermined price. Whereas, seller of future contact takes obligation to provide asset at expiry date at predetermined price. As farmer wants to ensure about selling price of his harvest, he would sell the future contract. 3. Answer. D Put option Explanation: Put option gives owner the right to sell the asset at set price. Call option gives right to buy to owner. Forward creates an obligation than option.