Suppose an Investor Sells (Writes) a Put Option

question 39

Multiple Choice

Suppose an investor sells (writes) a put option. What will happen if the stock price on the exercise date exceeds the exercise price?

• A) The seller will need to deliver stock to the owner of the option
• B) The seller will be obliged to buy stock from the owner of the option
• C) The owner will not exercise his option
• D) None of the above

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Definitions:

Fixed Manufacturing Overhead

The total of all production costs that do not change with the level of production output, such as salaries of managers, rent, and property taxes.

Variable Costing

Variable Costing is an accounting method that only assigns variable costs to inventory, treating fixed costs as period expenses.

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, indicating how much contributes to covering fixed costs.

Total Gross Margin

This is the difference between sales revenue and the cost of goods sold, before deducting administrative and selling expenses.