29. A call option is the right to sell 100 shares of a stock at a pre-set exerci

Question

29. A call option is the right to sell 100 shares of a stock at a pre-set exercise price. true or false

30. A put option is the right to buy 100 shares of a stock at a pre-set exercise price. true or false

31. A profit profile indicates how much money you might make for a call or a put. true or false

32. With a call option, the investor believes that the price of the underlying stock will increase in the very near future. true or false

33. With a put option, the investor believes that the price of the underlying stock will decrease in the very near future. true or false

34. The seller of a call option expects the underlying stock to remain constant or go down in value. true or false

Explanation / Answer

29. A call option is the right but not obligation to buy the stocks at a predetermined exercise price. So the statement is False since it is stating; “A call option is the right to sell 100 shares of a stock at a pre-set exercise price”.

30) A put option is the right but not obligation to sell the stocks at a predetermined exercise price. So the statement is False since it is stating; “A put option is the right to buy 100 shares of a stock at a pre-set exercise price.”

31) A profit profile indicates that how much money one might generate through the strategies of call or put. Hence the statement is True since it states; “A profit profile indicates how much money you might make for a call or a put.”

32) An investor in a call option expects the price to rise of the underlying stock so that the premium and the exercise price amount could be offset by such rise. In case the price goes down the investor loses its money to the extent of its premium. So the statement is True since it state; “With a call option, the investor believes that the price of the underlying stock will increase in the very near future.”

33) An investor in a put option expects the price to fall of the underlying stocks so that the premium and the exercise price amount could be offset by such fall. In case the price goes up the investor loses its money to the extent of its premium. So the statement is True since it states; “With a put option, the investor believes that the price of the underlying stock will decrease in the very near future.”

34) The seller of the call option expects the underlying stock to remain constant or go down because it will then become useless from the viewpoint of the investor to buy the stock at a higher exercise price than what the stock is trading at in the market. So the statement is True since it states; “The seller of a call option expects the underlying stock to remain constant or go down in value.”

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