You purchased a May American put option on Netscape stock with an exercise price of $165. Which of the following statements is true?
A) You have the right to buy Netscape shares for $165 at any time prior to the option expiration in May, regardless of the stock's market price.
B) You are obligated to buy Netscape shares for $165 when the option expires in May, regardless of the stock's market price.
C) You have the right to sell Netscape shares for $165 at any time prior to the option expiration in May, regardless of the stock's market price.
D) You are obligated to sell Netscape shares for $165 when the option expires in May, regardless of the stock's market price.
E) You have the right to sell Netscape shares for $165 at any time prior to the option expiration in May, but only if the stock price is greater than $165.

Question

Quizplus · Accepted Answer

A put option gives the holder the right, but not the obligation, to sell the underlying asset at a specified price (the strike price) before the option expires. Therefore, statement C is correct as it accurately describes the rights conferred by a put option.

You Purchased a May American Put Option on Netscape Stock