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The seller of a put option is not necessarily the seller of the underlying asset.
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- A call option holder has an obligation to sell the asset. True or false?When I buy an option, I gain rights, but I also have obligations to the option seller. True Or False?The potential loss incurred from purchasing a call option is finite, but the potential loss to the seller is unbounded. Explain why the potential loss that the seller may occur is unbouned.
- The seller (or the writer) of a call option: may have the obligation to sell the underlying asset at a strike price until an expiration date may have the obligation to buy the underlying asset at a strike price until an expiration date has the right to sell the underlying asset at a strike price until an expiration date has the right to buy the underlying asset at a strike price until an expiration date None of these answers are correct.The value of a derivative does not depend on the value of its underlying asset. True or FalseAs a call option is an option to buy and a put option an option to sell, the opposite position to buying an option to buy is buying an option to sell. Therefore, any factor that increases the value of a call option will decrease the value of a put option written on the same asset. Identify whether it is TRUE or FALSE. Why? Give an explanation.
- If instead of an unguaranteed residual value, there is a purchase option which is so low that it is expected Lessee will exercise it then Lessee adds the present value of the option as an additional payment to be made, but Lessor does not add it into the receivable. Both parties add in the present value of the option to the liability or receivable. Lessor adds the present value of the option as an additional payment to be received, but Lessee does not add it into the liability. Neither party considers the present value of the option for the liability or receivable.The pay off from an option depends on the market price of the underlying asset a) a put holder benefits from increase in the price b)a put writer benefits from an increase in the price c) a call holder benefits from decrease in price d) none of these are trueChoose which sentance is false. A. When you own a call option, you have the right to buy the asset. B. A option contract gives the writer the right, but not the obligation, to buy or sell a particular asset on or before a specifice date in the furture at a specific price. C. When you own a put option, you have the right to sell the asset. D. When you own a stock option, you have right, but not the obligation, to buy or sell a share of stock on or before a given date for a given price.
- Explain how electing the fair value option affects accounting for investments.Which of the following best describes an option contract? a. It gives the holder the obligation to buy or sell an underlying asset at a prespecified price for a specified time period. b. It gives the holder the right, but not the obligation, to buy or sell an underlying asset at a prespecified price for an unspecified time period. c. It gives the holder the right, but not the obligation, to buy or sell an underlying asset at a prespecified price for a specified time period. d. It gives the holder the right, but not the obligation, to buy or sell an underlying asset at an unspecified price for an unspecified time period.The buyer of the option is not obliged to complete the deal and will do so only if changes in price make it profitable to do so True False