Under What Circumstance Will the Buyer of a Put Option

question 121

Multiple Choice

Under what circumstance will the buyer of a put option be asked to perform his or her obligation?

• A)When the stock price has declined below the strike price.
• B)When the stock price has increased above the strike price.
• C)The put buyer has an equal obligation regardless of the relationship between stock and strike prices.
• D)The put buyer has no obligation whatsoever.

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Definitions:

Accrual Accounting

An accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur, providing a more accurate picture of a company's financial health.

Diversification

A risk management strategy that mixes a wide variety of investments within a portfolio or a company's product line to minimize risks.

Alternative Accounting Policies

Different methods that an organization can use for reporting similar transactions or economic events in financial statements, based on accepted accounting principles.

Discontinued Operations

Components of a business that have been sold or otherwise disposed of, or will be disposing of, which are reported separately in financial statements.