Question

In: Finance

Which one of the following actions will provide you with the right, but not the obligation,...

Which one of the following actions will provide you with the right, but not the obligation, to sell the underlying asset at a specified price during a specified period of time?

Multiple Choice

A Purchase of a call option

B Sale of a call option

C Purchase of a put option

D Sale of a put option

E Swap

Solutions

Expert Solution

the correct one is option A-purchase of a call option

Purchase of a call option is defined as :"a call is an option contract giving the owner the right,but not the obligation, to buy a specified price within a specified time.The specified price is known as the strike price and the specified time during which a sale is made is its expiration or time to maturity"

other items are explained below:-

sale of a call option refers to "A call option is the right to buy an underlying stock at a predetermined price up until a specified expiration date. On the contrary, a put option is the right to sell the underlying stock at a predetermined price until a fixed expiry date"

purchase of a put option refers to "In a put option agreement, the buyer of the put option can buy the right to sell a stock at a price (strike price) irrespective of where the underlying/stock is trading at. ... A put option buyer buys the right to sell the underlying to the put option writer at a predetermined rate (Strike price."

sell a put option on a stock means, you're selling someone the right, but not the obligation, to make you buy 100 shares of a company at a certain price (called the “strike price”) before a certain date (called the “expiration date”) from them.

jeff jeffy answered 1 year ago
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