NISM Certifications · NISM-Series-VIII: Equity Derivatives · Introduction to Options
Which of the following best describes the position of an investor who buys a put option?
A put option buyer holds the right, but not the obligation, to sell the underlying asset at the strike price on or before expiry, depending on the style. The buyer pays a premium for this right, and only the writer carries an obligation.
- AObligation to buy the underlying at the strike price
- BRight to sell the underlying at the strike priceCorrect
- CRight to buy the underlying at the strike price
- DObligation to sell the underlying at the strike price
Explanation
A put buyer pays a premium to obtain the right, not the obligation, to sell the underlying at the strike. Obligations belong to option writers, not buyers.
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