An investor who exercises a call option on a S&P 500 ETF will
A) purchase ETF shares at the strike price.
B) receive a cash settlement equivalent to the difference between the strike price and the current level of the index.
C) receive a cash settlement equivalent to the difference between the strike price and 100 times the current level of the index.
D) receive a cash settlement equivalent to the difference between the strike price and the current price of the ETF.

Question

Quizplus · Accepted Answer

Exercising a call option on an ETF, such as one tracking the S&P 500, means the investor has the right to purchase the ETF shares at the predetermined strike price, not receive a cash settlement. Cash settlements are typical for index options, not ETF options.

An Investor Who Exercises a Call Option on a S&P