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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options

An investor holds a European-style put option on a stock. Which statement correctly describes when the holder can exercise it?

A European-style option can be exercised only on its expiry date. This differs from an American option, which may be exercised at any time up to expiry. Options on indices and stocks traded on Indian exchanges are European style, so early exercise is not available.

  1. AOnly on the expiry date of the contractCorrect
  2. BOn any trading day up to and including expiry
  3. COnly on the day the premium is paid
  4. DOnly if the option is out-of-the-money at expiry

Explanation

A European option can be exercised only on the expiry date, unlike an American option, which can be exercised on any day up to expiry. Index and stock options traded on Indian exchanges are European style. Exercise on any earlier day is the American feature, so that option is wrong.

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