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What is a financial option?

• A contract granting the right to buy or sell an asset at a specified price within a set period.

• A type of fixed-income security.

• A guaranteed investment with no risk.

• A form of equity financing.

Can the payoff on a long position in an option contract be negative?

• No

• Yes

Which of the following is a characteristic of a call option?

• The obligation to sell an asset at a specified price.

• The right to sell an asset at a specified price.

Can the profit from purchasing an option and holding it to expiration be negative?

• Yes

• No

When the exercise price is equal to the current stock price, the option is

• ATM

• OTM

• ITM

What is the strike price of an option?

• The price at which the underlying asset is currently trading.

• The price at which the option was purchased.

• The predetermined price at which the option can be exercised.

If an option is in the money, it means:

• The option has no intrinsic value.

• The option cannot be exercised.

• The strike price is favorable compared to the market price.

Which of the following is NOT a type of option?

• Call option

• Put option

• Forward option

• American option

European options differ from American options in that they:

• Have a higher premium.

• Can only be exercised on the expiration date.

• Are restricted to European markets.

What is a protective put

• Buying a PUT on a stock you already own

• Selling a PUT on a stock you already own