Question : Statement 1: A call option gives the holder the right, but not the obligation, to sell an asset at a specified price.
Statement 2: A call option gives the holder the right to buy an asset at a specified price.
Option 1: Statement 1 is true, and statement 2 is true.
Option 2: Statement 1 is true, but statement 2 is false.
Option 3: Statement 1 is false, and statement 2 is true.
Option 4: Statement 1 is false, and statement 2 is false.
Correct Answer:
Statement 1 is true, but statement 2 is false.
Solution : The answer is (b) Statement 1 is true, but statement 2 is false.
A call option gives the holder the right, but not the obligation, to buy an asset at a specified price on or before a specified date. A put option gives the holder the right, but not the obligation, to sell an asset at a specified price on or before a specified date.
Call options are used by investors who believe that the price of the underlying asset will increase in the future. If the price of the asset does increase, the investor can exercise their call option and buy the asset at the specified price. This would allow them to profit from the increase in the price of the asset.
Put options are used by investors who believe that the price of the underlying asset will decrease in the future. If the price of the asset does decrease, the investor can exercise their put option and sell the asset at the specified price. This would allow them to limit their losses from the decrease in the price of the asset.
So, Statement 1 is true, but statement 2 is false.
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