Which of the Following Statements About Option Contracts Is Incorrect

question 13

Multiple Choice

Which of the following statements about option contracts is incorrect?

• A) The seller of a put option loses if the spot price, plus the premium, is below the exercise price when the option is exercised.
• B) The buyer of a call option benefits if the price of the spot is above the exercise price when the option is exercised.
• C) The buyer of a put option gains if the price of the spot is below the exercise price when the option is exercised.
• D) The seller of a call option loses if the spot price, plus the premium, is below the exercise price when the option is exercised.

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Definitions:

Marginal Benefit

The additional satisfaction or utility gained by consuming one more unit of a good or service.

Diamond

A precious gemstone formed from carbon under high pressure and temperature, valued for its brilliance, clarity, and rarity.

Water

Water is a transparent, tasteless, odorless, and nearly colorless chemical substance that is essential for the survival of most known forms of life.

Marginal Cost

The expense associated with manufacturing an additional unit of a product or service.