Question

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 information. d) Similarly to trading in futures, trading in exchange-traded options is managed by a clearing house to reduce traders' risk.

Answer 1

only statement (d) is true. options trading on exchanges is managed by a clearing house to manage risk.

(a) A call option specifies that the buyer of the option has a right, but not obligation to buy the underlying asset at the strike price

(b) A put option specifies that the holder of the option has a right, but not obligation to sell the underlying asset at the strike price

(c) Over-the-counter , or OTC options do exist and are traded. Exchange-traded options are not the only kind of options that are traded