Financial Options are a useful tool in the investment community but entail certa

Question

Financial Options are a useful tool in the investment community but entail certain risks and obligations. Which of the following best describes the purpose or characteristics of financial options:

A financial options is a derivative of an underlying security. At maturity the option holder is obligated to deliver or purchase the underlying security.

Financial options are used to generate income, hedge price risk and/or speculate on price moments of the underlying security.

Financial options pose significant risks to both parties in the option contract because if, at maturity, the option is "out of the money" both parties to the contract lose money.

Financial options are a relatively new phenomenon in the stock market and are rapidly gaining acceptance with the average retail investor based on their simplicity and known "all in cost" at any given point in time.

A financial options is a derivative of an underlying security. At maturity the option holder is obligated to deliver or purchase the underlying security.

Financial options are used to generate income, hedge price risk and/or speculate on price moments of the underlying security.

Financial options pose significant risks to both parties in the option contract because if, at maturity, the option is "out of the money" both parties to the contract lose money.

Financial options are a relatively new phenomenon in the stock market and are rapidly gaining acceptance with the average retail investor based on their simplicity and known "all in cost" at any given point in time.

Explanation / Answer

In option contract, optionholder has right but not obligation to excercise his option. in current financial market, Option is considered as most useful tool for investment and hedging.

The cost of holding a option is far cheaper than holding an underlying assets. the investor need to pay only premium which is very low as compared to holding an assets. So, financial options are a relatively new phenomenon in the stock market and are rapidly gaining acceptance with the average retail investor based on their simplicity and known "all in cost" at any given point in time.

Option (D) is correct answer.

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