Question

A _____ is a derivative security that gives the owner the right, but not the obligation, to sell an asset at a fixed price on the expiration date.

-American call option
-European put option
-American put option
-Euro-American swap
-European call option

Answer 1

An American put option is a derivative security that gives the owner the right, but not the obligation, to sell an asset at a fixed price on the expiration date. It provides flexibility for the owner to choose whether to sell the asset or not.

Step-by-step explanation:

An American put option is a derivative security that gives the owner the right, but not the obligation, to sell an asset at a fixed price on the expiration date. This means that the owner of an American put option can choose to sell the asset at the predetermined price if it is beneficial for them to do so, but they are not required to sell.

For example, let's say you own an American put option for a stock with a strike price of $50 and an expiration date of one month from now. If the stock price drops below $50 before the expiration date, you have the right to sell the stock at $50, even if the market price is lower. However, if the stock price is higher than $50 or if you choose not to sell, you can simply let the option expire and not exercise your right to sell.