Final answer:
A call option gives the purchaser the right to buy, not sell, a specified number of shares at a strike price before the expiration date, making the given statement false. A put option grants the right to sell shares. Options are a form of derivative securities important in financial and investing strategies.
Step-by-step explanation:
The statement 'a call option gives the purchaser the right to sell 100 shares of a stock at a guaranteed price before a definite expiration date' is false. A call option actually gives the purchaser the right to buy a certain amount of shares at a specified price, known as the strike price, before or on the expiration date. On the contrary, a put option grants the purchaser the right to sell a specified number of shares at a strike price prior to the expiry date.
Understanding options is crucial for strategic financial planning and investing. Options are a type of derivative security—meaning their value is derived from the value of an underlying asset, typically a stock. A call option benefits the holder when the underlying stock's market price exceeds the strike price, enabling the option holder to buy shares below the current market value. Conversely, if the market price is below the strike price, the call option is likely to expire worthless (the holder wouldn't exercise the right to buy at a higher price).
Options trading is often used by investors for hedging risk or for speculative purposes. Knowing the difference between call and put options, and understanding their respective rights and obligations, is essential. For instance, the buyer of a call option has the right, but not the obligation, to buy the underlying asset, while the seller (writer) of the call option has the obligation to sell the underlying asset if the option is exercised by the buyer.