If You Sell a Call Option on a Stock That

question 186

Multiple Choice

If you sell a call option on a stock that you don't own you:

• A) Have the right to force exercise of the option any time prior to maturity.
• B) May be forced to buy the underlying stock at the exercise price.
• C) Have a right to receive dividends on the underlying stock until exercise or maturity of the option.
• D) May be forced to sell the underlying stock at a fixed price if the option is exercised against you.
• E) May let the option expire without exercising it.

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Definitions:

Fair-Value Hedge

A hedge that protects against changes in the fair value of an asset, liability, or firm commitment that is attributable to a particular risk.

Forward Contract

A derivative financial instrument where two parties agree to buy or sell an asset at a predetermined future date and price.

Spot Rates

The current price at which a particular security, currency, or commodity can be bought or sold for immediate delivery.

Cash-Flow Hedge

A form of hedge accounting that protects against the variability in cash flows of a recognized asset or liability, or a forecasted transaction.