Which of the following statements is correct?
A) Options are securities with linear payoffs.
B) Option writers pay a premium to sell the option.
C) Option writers have assumed a long position in the option.
D) The payoff for the option writer is the mirror image of the option buyer.

Question

Quizplus · Accepted Answer

Options have non-linear payoffs, meaning the payoff for the option buyer is not a straight line, which inherently makes the option writer's payoff the mirror image of the buyer's. Option writers receive the premium and assume a short position, not a long one, in the option.

Which of the Following Statements Is Correct