An option
A)is not traded on an organized exchange and is customized to meet the needs of the parties.
B)is not traded on an organized exchange and is subject to formal regulations which results in standardized contracts
C)is traded on an organized exchange or may be negotiated on a case-by-case basis between counterparties.
D)is traded on an organized exchange and is customized to meet the needs of the parties.

Question

An option
A)​is not traded on an organized exchange and is customized to meet the needs of the parties.
B)​is not traded on an organized exchange and is subject to formal regulations which results in standardized contracts
C)​is traded on an organized exchange or may be negotiated on a case-by-case basis between counterparties.
D)​is traded on an organized exchange and is customized to meet the needs of the parties.

Quizplus · Accepted Answer

Option C is the most accurate as it states that options may be traded on an organized exchange or negotiated between counterparties, which covers both possibilities of where options can be traded. While options can be customized to meet the needs of the parties, this is not a defining feature of options as standardized contracts also exist. Therefore, options are not exclusively customized contracts (A) nor are they exclusively standardized contracts subject to formal regulations (B). Option D, which states that options are traded on an organized exchange and customized to meet the needs of the parties, is also incorrect as standardized contracts do exist and can be traded on organized exchanges.

An Option