Series 7 practice questionmediumOptions — Writing Puts Scenario
An investor writes 1 XYZ Sep 55 put at $4. The investor is obligated to do what if assigned?
- ASell 100 shares of XYZ at $55
- BSell 100 shares of XYZ at the market price
- CBuy 100 shares of XYZ at the market price
- DBuy 100 shares of XYZ at $55✓ Correct answer
Explanation
Why D — Buy 100 shares of XYZ at $55
A put writer is obligated to buy the underlying stock at the strike price if assigned. In this case, the writer must buy 100 shares at $55 per share regardless of the current market price. The effective cost basis would be $55 - $4 premium = $51 per share. Put writers should be willing to own the stock.
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