SIE Exam Question 420: Answer and Explanation

Question: 420

A short call is:

• A. An option contract where the investor has a contractual obligation, for the duration of the contract, to deliver the underlying instrument at the strike price upon exercise.
• B. An option contract where the investor has a contractual obligation until expiry to purchase the underlying instrument at the exercise price upon exercise.
• C. An option contract where the investor has borrowed a call option from an investor with a long position and sold it short in anticipation of a decline in the option premium prior to expiry.
• D. An option contract where the investors has the right to purchase the underlying instrument at any time prior to option expiration at the designated strike price.

Correct Answer: A

Explanation:

A: Answer A is accurate --- short call means writing a call, which puts the investor in an obligated position to sell 100 shares of the stock at the exercise price if exercised….. assuming it's an equity option.