SIE practice questionmediumLong/Short positions
A customer who sells a put option is exposed to which primary risk?
- AStock remains unchanged, incurring a loss
- BStock rises above strike price, requiring sale at a loss
- CStock declines below strike price, requiring purchase of declining asset✓ Correct answer
- DOption premium increases, causing margin call
Explanation
Why C — Stock declines below strike price, requiring purchase of declining asset
The principal risk is having to buy stock below market value if it falls below strike. B applies to calls, C is unlikely as the premium is kept, and D misstates the typical risk.
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