An options contract gives the buyer the right, but not the obligation, to buy or sell an underlying asset at a predetermined price within a specified time period. This means it is different from a forward contract, which is an agreement to buy or sell an asset at a future date. Option contracts can be written for both debt securities and equities.

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An Options Contract

Question 18

Multiple Choice

An options contract:

A) is another name for a forward contract.
B) gives the right to buy or sell an underlying asset at a predetermined price by a specified time.
C) may be written for debt securities but not equities.
D) may be written for equities but not debt securities.

Correct Answer: