Question

Margin requirements for LEAP options are typically higher when the options have a maturity of greater than 9 months compared to those with a maturity of less than 9 months.

A. Lower
B. Unchanged
C. Higher
D. Variable

Answer 1

The margin requirements for LEAP options with a maturity of greater than 9 months are typically higher compared to options with a maturity of less than 9 months.

Step-by-step explanation:

The correct answer is C. Higher. Margin requirements for LEAP options, which are options with a maturity of greater than 9 months, are typically higher compared to options with a maturity of less than 9 months.

This is because LEAP options have a longer time horizon, making them riskier and potentially more volatile. With a longer maturity, there is more time for the underlying asset's price to move, increasing the potential for larger losses. Therefore, to mitigate this increased risk, higher margin requirements are imposed on LEAP options.

For example, let's say there are two options: one with a maturity of 3 months and another with a maturity of 15 months. The margin requirement for the 15-month option would be higher due to the longer time horizon and higher potential for price fluctuations.