An option provides a right to the writer and an obligation to the buyer. True or...

An option provides a right to the writer and an obligation to the buyer. True or False?

True

False

Expert Solution

FALSE

Given statement is false. Rather correct statement is: An option provides a right, and not an obligation, to the buyer and the obligation to the writer.

jeff jeffy answered 2 years ago

True or False? Short Call Option provides the option (not the obligation) to sell the underlying...

True or False? Short Call Option provides the option (not the obligation) to sell the underlying asset for the strike price at maturity.” Explain your answer with example(s). True or False? Long Put Option provides the option (not the obligation) to sell the underlying asset for the strike price at maturity.” Explain your answer with example(s).

(a) What is the payoff profile of a buyer and a writer of an option?

(a) What is the payoff profile of a buyer and a writer of an option? (b) What causes option’s premium to change over time?

The option writer determines when/if an option is exercised. True or False?

What does it mean to say that a buyer has a right, not an obligation?

“Real options” use the concept of an option as the right but not the obligation to...

“Real options” use the concept of an option as the right but not the obligation to buy or sell an asset. In looking at investment projects with large capital expenditures – such as whether to drill for oil in a new field – managers often use this approach to planning their investment spending in stages. How would this approach be used to manage the risks in a large project, and why is it preferable to the use of discounted cash...

1. Which of the following is right: A. "Out-of-the-money” option gives options writer profit which exceeds...

1. Which of the following is right: A. "Out-of-the-money” option gives options writer profit which exceeds option premium. B. “at-the-money” is the breakeven point of negative and positive payoffs for option holders. C. “in-the-money” means option holders will definitely profit by exercising the option. D. Option writer earns option premiums as payoffs when the option is “at-the-money”. 2. What is the main difference between the forward contract and the future contract? A. Forward contract looks forward, but future contract looks...

The option writer in Example 1.6.6 sells a digital option to a speculator. This amounts to...

The option writer in Example 1.6.6 sells a digital option to a speculator. This amounts to a bet that the asset price will go up. The payoff is a fixed amount of cash if the exchange rate goes to $165 per £100, and nothing if it goes down. If the speculator pays $10 for this bet, what cash payout should the option writer be willing to write into the option? You may assume that interest rates are zero. (Example 1.6.6...

A writer of a call option will want the value of the underlying asset to ________,...

A writer of a call option will want the value of the underlying asset to ________, and a buyer of a put option will want the value of the underlying asset to ________. A. decrease; decrease B. decrease; increase C. increase; increase D. increase; decrease

One distinguishing difference between the buyer of a futures contract and the buyer of an option...

One distinguishing difference between the buyer of a futures contract and the buyer of an option contract is that the futures buyer: A) Pays a much higher premium than option buyers B) Has an obligation to purchase, not a choice C) Can lose no more than initial premium D) Has increased rather than reduced risk

TRUE OR FALSE-Law in Obligation and Contracts The period in an obligation always refers to the...

TRUE OR FALSE-Law in Obligation and Contracts The period in an obligation always refers to the future. If the debtor fails to perform an obligation to sing, the creditor may compel the debtor to comply with the obligation. If the obligation consists in the delivery of a determinate thing, the debtor who incurs in delay shall not be responsible for loss due to fortuitous event. In an obligation to give a determinate thing which is subject to a suspensive...

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