3- An option to purchase binds which of the following parties? a) Buyer only b) Seller...

3- An option to purchase binds which of the following parties?
a) Buyer only
b) Seller only
c) Neither buyer nor seller
d) Both buyer and seller

please explain the answer you did not explain that earlier

Expert Solution

Seller only

People who buy options are called holders ( buyers) and those who sell options are called holders (sellers).

The buyers have the option, but not the obligation to buy or sell an underlying asset at a set price. For example if the S&P is trading at 500 and the portfolio manager thinks he market might go down. in this case, the manager can buy a put option which gives him a right to sell the S&P at 500 in future if S&P index goes down. However, he has the option not to exercise this right if the stcok market goes up. However, the seller who is the other party on the contract is obligated to purchase at 500 if the buyer of the option exercise his right.

jeff jeffy answered 2 years ago

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