Which of the following is true of an option?
A)It is based on market volatility and thus assures a high profit to risk preferring individuals.
B)It provides the holder the right (but does not obliges him/her) to buy or sell a certain quantity of an underlying asset before its expiration.
C)The greater the volatility of the underlier's price the less likely that the option will go "in the money" before it expires.
D)Options help individuals to minimize their business risks by transferring it to others for a fixed time interval.

Question

Quizplus · Accepted Answer

An option provides the holder the right (but does not obliges him/her) to buy or sell a certain quantity of an underlying asset before its expiration. Options are not based solely on market volatility and do not necessarily provide a high profit to risk preferring individuals. The greater the volatility of the underlier's price, the more likely that the option will go "in the money" before it expires, not less likely. Options can help individuals to minimize their business risks, but not by transferring it to others for a fixed time interval.

Which of the Following Is True of an Option