SIE Exam Question 273: Answer and Explanation

Question: 273

All investors with short option positions:

• A. Have a contractual obligation to perform in accordance with the contract terms if the option is exercised.
• B. Pay a premium in order to acquire the contractual rights associated with the option.
• C. Must be considered suitable for short sales of stock in order to be permitted to engage in shorting options.
• D. May close out the position by taking a long position in a corresponding option contract.

Correct Answer: A

Explanation:

A: Any investor who writes a call or a put option, also known as selling an option, also known as 'shorting' an option, is obligated to perform in accordance with the terms of the contract, but only if the option is exercised by the person who had purchased the option, referred to as the holder of the option, or the long option position.