Asked by Shiva Ghahramani on Apr 27, 2024
Verified
Buyers of call options __________ required to post margin deposits, and sellers of put options __________ required to post margin deposits.
A) are; are not
B) are; are
C) are not; are
D) are not; are not
E) are always; are sometimes
Margin Deposits
Funds that an investor must deposit as collateral to borrow from a broker to buy securities, typically used for trading on margin.
Call Options
Financial derivatives that grant the holder the option to purchase stocks or other assets at a predetermined price before the option expires.
Put Options
A financial contract granting the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a specified timeframe.
- Differentiate between call and put options along with their respective market dynamics.
- Understand the consequences and potential hazards associated with the practice of option writing.
Verified Answer
EG
Eddie GarciaMay 02, 2024
Final Answer :
C
Explanation :
Buyers of call options are not required to post margin deposits because they can only lose the premium they paid for the option. Sellers of put options are required to post margin deposits because they have potential for significant loss if the underlying asset's price falls dramatically.
Learning Objectives
- Differentiate between call and put options along with their respective market dynamics.
- Understand the consequences and potential hazards associated with the practice of option writing.