Which of the following statements is true of the holder of a call option?
A) Option holders pay no income taxes.
B) Holders of a call option have restricted profits.
C) Option holders do not receive dividends
D) Investors in call options do not have to exercise them and therefore cannot sustain losses.

Question

Quizplus · Accepted Answer

Call option holders have the right, but not the obligation, to buy an underlying asset at a specified price (strike price) within a certain time period. They do not receive dividends because they do not actually own the underlying asset. Option holders can sustain losses if the value of the underlying asset decreases, but they can also choose not to exercise the option and limit their losses to the premium paid for the option. Option profits are not restricted, as they can potentially earn unlimited profits if the value of the underlying asset increases significantly. Option holders still have to pay income taxes on any profits earned from exercising the option.

Which of the Following Statements Is True of the Holder