The Characteristics of a Call Option Are Best Described as Follows

question 64

True/False

The characteristics of a call option are best described as follows:
A. It allows the holder to sell the shares of the specified company at a prespecified (strike or exercise) price. The exercise price remains fixed, but the option can be traded in a market and its value will depend on the value of the underlying share such that an increase in the price of the share will lead to a decrease in the value of the option (and vice versa). The holder usually does not have to exercise the option and would choose not to if the share price were above the exercise price.
B. It allows the holder to buy the shares of the specified company at a prespecified (strike or exercise) price. The exercise price will depend on the value of the underlying share such that an increase in the price of the share will lead to an increase in the exercise price (and vice versa). The holder is committed to exercise the option or close out the contract by taking a put option position in the market.
C. It allows the holder to buy the shares of the specified company at a prespecified (strike or exercise) price. The exercise price remains fixed, but the option can be traded in a market and its value will depend on the value of the underlying share such that an increase in the price of the share will lead to an increase in the value of the option (and vice versa). The holder usually does not have to exercise the option and would choose not to if the share price fell below the exercise price.
D. It allows the holder to sell the shares of the specified company at a prespecified (strike or exercise) price. The exercise price remains fixed, but the option can be traded in a market and its value will depend on the value of the underlying share such that an increase in the price of the share will lead to an increase in the value of the option (and vice versa). While the holder of a put option usually does not have to exercise the option and would choose not to if the share price fell below the exercise price, the holder of a call option must either complete the contract or close it out by taking out a put option for the same number of shares in the market.
E. None of the given answers.

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Definitions:

Fixed-interval Schedule

A timing-based reinforcement scheme where a specific time interval must elapse before a response is rewarded.

Reinforcement

In behavioral psychology, it refers to a process that increases the likelihood of a behavior by adding or removing a stimulus following the behavior.

Randomly Varying

Characterized by changes or differences that occur in a random manner, not following any specific pattern or prediction.

Shaping

A training technique that involves gradually reinforcing behaviors that come closer and closer to a targeted action.