The Seller of a Put Option Is Transferring the Risk

question 89

Multiple Choice

The seller of a put option is transferring the risk:

• A)Of a price decrease of the stock to the buyer of the option.
• B)Of a price increase of the stock to the buyer of the option.
• C)This statement is incorrect since options do not transfer risk.
• D)This statement is incorrect since only sellers of call options are transferring risk.

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Definitions:

Poisson Approximation

A statistical approximation method that applies the Poisson distribution to model the number of events in fixed intervals of time or space under certain conditions.

Probability

The statistical likelihood that a specific event will take place, calculated as a fraction or a percentage between 0% (never happening) and 100% (always happening).

Normal Model

A statistical model, also called the normal distribution, that describes how continuous data is distributed, shaped like a symmetric bell curve.

Standard Deviations

Measures that quantify the amount of variation or dispersion of a set of data values from the mean.