Which of the following statements about put and call options is true?
A) They are traded only over-the-counter.
B) They are a form of deferred equity financing by a firm.
C) They can be used to lock in a gain or prevent a loss on a stock holding.
D) They provide the seller with an opportunity to earn larger returns than simply buying or selling common stock.

Question

Quizplus · Accepted Answer

Put and call options can be used by investors to lock in a gain or prevent a loss on a stock holding. They allow the buyer the right, but not the obligation, to purchase or sell the underlying asset at a predetermined price within a certain timeframe. They can be traded both over-the-counter and on exchanges. Option trading does not necessarily provide the seller with larger returns than buying or selling common stock. Option trading involves risks, including the potential loss of the entire premium paid.

Which of the Following Statements About Put and Call Options