Products & Their RisksQuestion 87 of 398
An investor writes (sells) a put option. This investor:
a.Has the right to sell stock at the strike price
b.Profits most if the stock price falls sharply
c.Has unlimited profit potential
d.Is obligated to buy the stock at the strike price if exercised, and is generally bullish to neutral
Explanation
A put writer receives a premium and takes on the obligation to buy the underlying stock at the strike price if the holder exercises. The writer profits if the stock stays above the strike (the put expires worthless) and is therefore bullish to neutral; the maximum loss occurs if the stock falls toward zero.
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Related questions on this topic
- The buyer (holder) of a call option has the right to:
- An investor who buys a put option is generally:
- The writer (seller) of a call option is obligated to:
- A call option with a strike price of $50 is held while the underlying stock trades at $57. This call is:
- A put option with a strike price of $40 is held while the underlying stock trades at $45. This put is:
- When the market price of the underlying stock exactly equals the strike price, both a call and a put on that stock are said to be:
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