Question

Ownership of a ______ gives the holder the right to buy the underlying security at a specified price at any time before the given expiration date.

put option

call option

futures contract

forward contract

Answer 1

Ownership of a CALL OPTION gives the holder the right to buy the underlying security at a specified price at any time before the given expiration date.

Ownership of put option, gives holder the right to SELL the underlying security at a specified price at any time before the given expiration date.

Future contracts are also agreements between two parties in which the buyer agrees to buy an underlying asset from the other party (the seller) at a decided price. These are traded on market exchange

A forward is an agreement between two counterparties - a buyer and seller. The buyer agrees to buy an underlying asset from the other party (the seller) at a decided price. These are not traded on exchange.