Two types of option contracts are calls and puts. Which statement correctly describes a call option?

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Multiple Choice

Two types of option contracts are calls and puts. Which statement correctly describes a call option?

In a call option, the holder (grantee) has the right to buy the underlying asset at a specified price, and the seller (grantor) must deliver that asset if the holder chooses to exercise the option. That makes the statement that the grantor must sell the asset to the grantee the correct description. The holder pays a premium for the option, and the writer’s obligation to sell arises only if the option is exercised; if the option isn’t exercised, there’s no delivery. This is why other descriptions don’t fit: a call option doesn’t require the holder to sell, and there is indeed an obligation on the grantor upon exercise.

In a call option, the holder (grantee) has the right to buy the underlying asset at a specified price, and the seller (grantor) must deliver that asset if the holder chooses to exercise the option. That makes the statement that the grantor must sell the asset to the grantee the correct description. The holder pays a premium for the option, and the writer’s obligation to sell arises only if the option is exercised; if the option isn’t exercised, there’s no delivery. This is why other descriptions don’t fit: a call option doesn’t require the holder to sell, and there is indeed an obligation on the grantor upon exercise.

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