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:

Market Price

The existing rate at which an asset or service is offered for buying or selling.

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the cost per unit of production.

Fixed Cost

Costs that do not change with the level of output or production, such as rent, salaries, and insurance.

Market Price

The actual selling price of a good or service in the marketplace at any given time.