The Writer of a Put Option Hopes That the Price

question 81

Multiple Choice

The writer of a put option hopes that the price of the underlying stock will rise because

• A) the option is more likely to be exercised.
• B) the option is less likely to be exercised.
• C) the buyer of the put will have to purchase the stock at a higher price.
• D) the value of the put option will increase in the secondary market.

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Definitions:

Credit

A financial agreement where a borrower receives something of value now and agrees to repay the lender at a future date.

Liability Account

An accounting record representing money or value owed by the company to others.

Decrease

A reduction in size, number, or amount.

Debit

A bookkeeping record that leads to an uptick in a firm's assets or a reduction in its liabilities on the balance sheet.