SIE Understanding Products and Their Risks Question 10: Answer and Explanation

Question: 10

Which of the following is a characteristic of an option that is traded over the counter?

• A. Terms may be negotiated.
• B. Terms will be standardized.
• C. Stock indexes will not be the underlying basis.
• D. The holder must provide notification of intention to exercise by 4:00 p.m. eastern time on the third Friday of the expiration month.

Correct Answer: A

Explanation:

A: Terms may be negotiated in an option that is traded over the counter. Choice B reflects exchange-traded options. Choice C is incorrect because stock indexes may be the underlying basis. Choice D is incorrect because the holder must provide notification of intention to exercise by 5:30 p.m. eastern time on the third Friday of the expiration month.