Question

Which one of the following is true for option contracts?

a. If an option buyer decides to exercise the option, she will always buy the underlying security from the option seller at the strike price.

b. As a call option’ strike price increases, while everything else being equal, the call option becomes more valuable. c. The protective put strategy is often used by short-sellers to manage down-side risk.

d. None of the above.

Answer 1

None of the given statements are true because if a option buyer wants to exercise the contract, she will have to exercise the contract at the prevelent market prices not the strike price .

In Call option,when the strike price increases, the value of option goes on declining and becoming less valuable.

The protective put strategies are often used by persons who are long, to protect against any sudden downside.it is not used by short sellers, so the given statement is false.

So None of the statements are true and the correct option would be option d.

Option (D) none of the above will be the answer.