Stock index options
1. permit the investor to short the market instead of individual stocks
2. require delivery of an index of stocks
3. limit the buyer's potential loss to the cost of the option
A)1 and 2
B)1 and 3
C)2 and 3
D)all of the above

Question

Quizplus · Accepted Answer

1. Stock index options allow investors to speculate on the direction of the entire market or specific sectors without having to short individual stocks. 3. The buyer of an option (call or put) can only lose the premium paid for the option, limiting their potential loss. Stock index options are cash-settled based on the index value, not requiring delivery of an index of stocks, making statement 2 incorrect.

Stock Index Options 1. Permit the Investor to Short the Market Instead of Market