Asked by Kaohulani Palakiko on Jul 13, 2024
Verified
Sue just sold 1,500 American calls. This transaction:
A) Gives Sue the right to sell 1,500 shares at any time prior to the option expiration.
B) Grants Sue the right to buy 150,000 shares at any time prior to the option expiration.
C) Obligates Sue to buy 15,000 shares if the option is exercised prior to expiration.
D) Provides Sue the right to sell 150,000 shares of stock on the expiration date if she so chooses.
E) Obligates Sue to sell 150,000 shares if the option is exercised by the expiration date.
American Calls
Options contracts that allow the buyer to exercise the option to buy the underlying asset at the strike price at any time before expiration.
Option Expiration
The date on which an options contract becomes void and the holder no longer has rights for which it provides.
Shares
Units of ownership interest in a corporation or financial asset that provide for an equal distribution in any profits, if any are declared, in the form of dividends.
- Acquire knowledge of the basic notions and definitions pertinent to options, covering calls and puts.
- Identify the influence of market variables on the pricing of options.
Verified Answer
AH
Armando HernandezJul 14, 2024
Final Answer :
E
Explanation :
Selling a call option obligates the seller to sell the underlying asset at the strike price if the option is exercised. Since each option contract typically represents 100 shares, selling 1,500 calls would obligate Sue to sell 150,000 shares (1,500 x 100) if the options are exercised.
Learning Objectives
- Acquire knowledge of the basic notions and definitions pertinent to options, covering calls and puts.
- Identify the influence of market variables on the pricing of options.