SIE Understanding Products and Their Risks Question 48: Answer and Explanation

Question: 48

Which of the following is correct regarding all listed options, since are all guaranteed?

• A. All obligations of the options contracts are fulfilled.
• B. No investor who exercises a contract will ever be "out of the money" for more than the premium paid for the option.
• C. Every investor who exercises a contract will be "in the money" or "at the money."
• D. No company will be bankrupt on the exercise date of its stock options.

Correct Answer: A

Explanation:

A: Choice A is correct because the OCC guarantees all listed options in the event that the writer fails to perform, in order to promote financial integrity and stability in the marketplace. Choices B and C are incorr4ect because the guarantee does not relate to the market price being favorable to, or equal to, the strike price when exercised. Choice D is incorrect because the financial strength of the issuer of the underlying security is not guaranteed by the OCC.