Which one of the following statements is correct?
A) An option seller makes more profits than an option buyer.
B) A futures seller makes more profits than a futures buyer.
C) The profit realized by the buyer of futures will be equal to the loss incurred by the seller.
D) Both the buyer and the seller of a futures contract can earn a profit.

Question

Quizplus · Accepted Answer

The profit realized by the buyer of futures will be equal to the loss incurred by the seller. This is because futures contracts are a zero-sum game, meaning that for every dollar gained by a buyer, a dollar is lost by the seller. Therefore, both parties cannot earn a profit simultaneously. Option A and B are incorrect because the profitability of an option or futures contract depends on various factors and cannot be generalized to either the buyer or seller earning more profits. Option D is also incorrect as futures contracts are a zero-sum game, and both parties cannot earn a profit simultaneously.

Which One of the Following Statements Is Correct