Julian has purchased a derivative that will allow him to purchase a security at a specific price.The seller of the derivative has allowed Julian to purchase the security or let the derivative expire without being exercised for a certain premium.Julian intends to purchase the security only if the underlying security's price goes above the strike price.Which of the following kinds of derivative does Julian hold?

Question

Quizplus · Accepted Answer

Julian holds an option, which gives him the right (but not the obligation) to purchase the security at a specific price (the strike price). He will only exercise this option if the underlying security's price goes above the strike price. The premium he paid to the seller of the derivative is the price he paid for the option.

Julian Has Purchased a Derivative That Will Allow Him to Purchase