The buyer of a call option has the:
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A. B. C. D.D
The correct answer is D. The buyer of a call option has the right to buy the underlying asset in the future under certain conditions.
To understand this, let's break down the key components:
Call Option: A call option is a financial contract that gives the holder (buyer) the right, but not the obligation, to buy a specified quantity of an underlying asset at a predetermined price (strike price) within a specific period of time (expiration date).
Buyer: The buyer of the call option is the individual or entity who purchases the call option from the seller (also known as the writer) of the option.
Underlying Asset: The underlying asset is the financial instrument or security that the call option is based on. It could be a stock, bond, commodity, or any other asset specified in the option contract.
Now, let's analyze the buyer's position:
The buyer of a call option pays a premium to the seller in exchange for the right to buy the underlying asset. This means the buyer has the choice, but not the obligation, to exercise the call option. The buyer can choose whether or not to buy the underlying asset, depending on market conditions and their own investment strategy.
If the buyer decides to exercise the call option, they have the right to buy the underlying asset from the seller at the predetermined strike price, regardless of the current market price of the asset. This can be advantageous if the market price of the asset rises above the strike price, as the buyer can then purchase the asset at a lower price and potentially profit from the price difference.
However, if the market price of the underlying asset remains below the strike price or if the buyer does not wish to exercise the option, they are not obligated to buy the asset. In such cases, the buyer can choose to let the call option expire worthless, and they would only lose the premium paid for the option.
Therefore, the buyer of a call option has the right to buy the underlying asset in the future under certain conditions, making answer choice D the correct option.