Unlike the forward hedge,there are upfront cash flows related to the option premium,which means that:
A)the buyer or seller must pay a fee to buy or sell an option.
B)dealing with options always results in some loss of money.
C)money must be spent to buy the option or money is received on the sale of an option.
D)option results in the elimination of cash flow variables.

Question

Quizplus · Accepted Answer

When buying or selling an option, an upfront payment known as the option premium must be made. This payment will either be an outflow of cash for the buyer or an inflow of cash for the seller. Therefore, option trading involves spending money to buy an option or receiving money from the sale of an option. Options do not eliminate cash flow variables but rather introduce a new factor that needs to be considered when executing a hedging strategy.

Unlike the Forward Hedge,there Are Upfront Cash Flows Related to the Option