Which of the following statements about backdating is most valid?
A)A backdated option is one that is issued prior to today.
B)Backdating usually involves the issuance of an option with a prior issue date and lower strike than today's price.
C)Backdating usually involves the ex-post issuance of an out-of-the-money option.
D)A backdated option is exactly the same as a fixed-strike lookback option.

Question

Quizplus · Accepted Answer

All options that are alive today must have been issued prior to today,except for the ones issued today.It is the act of issuance of an option today with a prior issue date that constitutes a backdated option.Usually backdating involves the issuance of in-the-money options,where a low strike price over some past period is chosen to offer the highest benefit to the holder,a practice that has received intense SEC scrutiny.A backdated option is not the same as a lookback,because the holder does not always get the benefit of the best lookback strike at maturity.Looking back to set the strike is more like holding a floating-strike lookback option than a fixed-strike one.

Which of the Following Statements About Backdating Is Most Valid