Question 26 of 5 26 The writer of a put option O agrees to s

Question 26 (of 5 26. The writer of a put option O agrees to sell shares at a set price if the option holder desires O has the right to buy shares at a set price O agrees to buy shares at a set price if the option holder desires O has the right to sell shares at a set price

Solution

The writer of the put option is the seller of the option. Put option gives the buyer the right but not the obligation to sell the underlying security at a predetermined price, for which he pays the seller an upfront premium. Therefore, the writer or the seller has to buy the underlying at the pre determined price if the buyer wants to sell. He has an obligation because he has been paid the upfront premium and can\'t deny the option buyer from buying the underlying if the option buyer wants to sell the underlying.