What Is the Essential Difference Between a Call Option and a Put

question 19

Multiple Choice

What is the essential difference between a call option and a put option?

• A) A call option transaction occurs now, while a put option transaction takes place in the future.
• B) An call option transaction is the right to purchase the underlying asset, while a put option is the right to sell the underlying asset.
• C) An call option transaction is not standardized, while put option transaction is standardized.
• D) An call option transaction deals with financial assets, while a put option transaction deals with commodities.

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Definitions:

Degree of Operating Leverage

A financial metric that measures how a change in sales volume will affect a company's operating income due to fixed and variable costs.

Fixed Costs

Expenses that do not change with varying levels of production or sales, such as rent or salaries.

Depreciation Expense

A measure of the reduction in value of an asset over a given period, used for accounting and tax purposes.

Managerial Options

Options given to executives and managers as part of their compensation package, allowing them to purchase company stock in the future at a price set today.