When a six-month option is purchased A. The price must be paid in full B. Up to 25% of the option price can be borrowed using a margin account C. Up to 50% of the option price can be borrowed using a margin account D. Up to 75% of the option price can be borrowed using a margin account

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Business

Giovanny Santos

31 August, 21:23

When a six-month option is purchased A. The price must be paid in full B. Up to 25% of the option price can be borrowed using a margin account C. Up to 50% of the option price can be borrowed using a margin account D. Up to 75% of the option price can be borrowed using a margin account

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Krish · Answer 1

A. The price must be paid in full

Explanation:

Derivatives refer to securities whose value is derived or based upon the rise and fall in the value of the underlying asset. For example, commodity derivatives.

An option refers to a derivative instrument whereby the buyer purchases the right and not the obligation, to purchase or sell a security at a pre determined price, referred to as exercise price. at a future date.

For purchasing an option, the buyer is charged a premium referred to as option premium. A call buyer purchases the right to call (buy) whereas a put buyer purchases the right to sell at a later date at an exercise price.

In case of options, only the net profit/loss is actually paid/received. While purchasing a six month option, the purchase price is to be paid in full at the time of entering the contract.