Question

Which of the following statements for puts at expiration are inaccurate? A. The put buyer’s maximum...

Which of the following statements for puts at expiration are inaccurate?

A. The put buyer’s maximum loss is the put option’s premium. B. The maximum loss to the writer of a put is the strike price less the premium. C. The put holder will not exercise the option whenever exercising the option incurs loss. D. All of the above options are inaccurate.

Homework Answers

Answer #1

Put Option is the right to sell the underlying asset at a specified price on a future date

The Option is exercisable at the option of put buyer and he pays a premium for it to the option seller

Maximum Loss to Put buyer is the premium paid

Maximum loss to put seller = Strike price - Premium received

The put buyer will not exercise whenever the market price is higher than the strike price as it is better to sell in the market

Premium has already been paid and is irrelevant at maturity for the purpose of this decision.

Hence, the answer is C. C is inaccurate

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which of the following statements for puts at expiration are inaccurate? A. The put buyer’s maximum...
Which of the following statements for puts at expiration are inaccurate? A. The put buyer’s maximum loss is the put option’s premium. B. The maximum loss to the writer of a put is the strike price less the premium. C. The put holder will not exercise the option whenever exercising the option incurs loss. D. All of the above options are inaccurate.
Which of following statements about options contracts is correct? The holder of a European call option...
Which of following statements about options contracts is correct? The holder of a European call option has the right to buy the underlying asset at the exercise price on or before the expiration date. The holder of an American put option has the right to sell the underlying asset at the exercise price on or before the expiration date.   The holder of a European put option has the obligation to sell the underlying asset at the exercise price on the...
An investor writes a put option with exercise (strike) price of $80 and buys a put...
An investor writes a put option with exercise (strike) price of $80 and buys a put with exercise price of $65. The puts sell for $8 and $3 respectively. If the options are on the same stock with the same expiration date, i. Draw the payoff and profit/loss diagrams for the above strategy at expiration date of options ii. Calculate the breakeven point for this strategy and discuss whether the investor is bullish or bearish on the underlying stock.
Which of the following has the obligation to purchase stock at the strike price when an...
Which of the following has the obligation to purchase stock at the strike price when an option is exercised? c. put holder d. put writer b. call writer e. call writer and put holder a. call holder Which of the following has the obligation to sell a stock at the strike price when an option is exercised? a. call holder e. call holder and put writer b. call writer c. put holder d. put writer
Which of the following statements is true? Multiple Choice For both calls and puts an increase...
Which of the following statements is true? Multiple Choice For both calls and puts an increase in the exercise price will cause an increase in the option price. For both calls and puts an increase in the time to expiration will cause an increase in the option price. For calls, but not for puts, an increase in the time to expiration will cause an increase in the option price. For puts, but not for calls, an increase in the time...
Which of the following statements about options and their trading is true? Question 25 options: a)...
Which of the following statements about options and their trading is true? Question 25 options: a) An American call option is a contract specifying that the writer undertakes to buy an asset at the exercise price on the holder's request. b) The holder of a put option is obligated to sell the underlying asset if the market price is less than the exercise price. c) Options are, without exception, traded on organized exchanges where regulations prevent unlawful use of privileged...
Suppose you are an options trader. You have recently sold two contracts of puts on a...
Suppose you are an options trader. You have recently sold two contracts of puts on a stock that is currently selling at $27.50. The exercise price on the puts is $25.00. You also buy three contracts of calls on the same stock that has an exercise price of $24.00. The premium on the call is $.85 per option while the premium on the put is $2.00 per option. If, at expiration, the stock price is $28.31, what is your combined...
Which of the pricing relationship below is correct? A call option has no value at expiration...
Which of the pricing relationship below is correct? A call option has no value at expiration if the stock price is greater than the strike price. Put options with a lower strike price are worth at least as much as put options with a higher strike price. The net profit at expiration for a put is the strike price plus the price of the stock at expiration minus the price of the put at expiration. The net profit at expiration...
For a European call option and a European put option on the same stock, with the...
For a European call option and a European put option on the same stock, with the same strike price and time to maturity, which of the following is true? A) Before expiration, only in-the-money options can have positive time premium. B) If you have a portfolio of protected put, you can replicate that portfolio by long a call and hold certain amount of risk-free bond. C) Since both the call and the put are risky assets, the risk-free interest rate...
For a European call option and a European put option on the same stock, with the...
For a European call option and a European put option on the same stock, with the same strike price and time to maturity, which of the following is true? A) When the call option is in-the-money and the put option is out-of-the-money, the stock price must be lower than the strike price. B) The buyer of the call option receives the same premium as the writer of the put option. C) Since both the call and the put are risky...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT