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Answer on Economics of Enterprise Question for LaMarcus Streeter

Question #6208
1. Which of the following statements is CORRECT?

a. Put options give investors the right to buy a stock at a certain strike price before a specified date.
b. Call options give investors the right to sell a stock at a certain strike price before a specified date.
c. Options typically sell for less than their exercise value.
d. LEAPS are very short-term options that were created relatively recently and now trade in the market.
e. An option holder is not entitled to receive dividends unless he or she exercises their option before the stock goes ex dividend.
Expert's answer
e. An option holder is not entitled to receive dividends unless he or she exercises
their option before the stock goes ex dividend.
In finance, an option is a derivative financial instrument that specifies a contract between two parties for a future transaction on an asset at a reference
price (the strike).[1]The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller
incurs the corresponding obligation to fulfill the transaction. The price of an
option derives from the difference between the reference price and the value of
the underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option. Other types of options
exist, and options can in principle be created for any type of valuable
asset.
An option which conveys the right to buy something at a specific price is called a call; an option which conveys the right to sell something at a specific price is called a put. The reference price at which the underlying asset may be traded is called the strike price or exercise price. The process of activating an option and thereby trading the underlying at the agreed-upon
price is referred to as exercising it. Most options have an expiration date. If the option is not exercised by the expiration date, it becomes void and worthless.

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