Final answer:
Stock options do not pay dividends as they are contracts that provide the right to buy or sell a stock at a specified price, and they are indeed traded on exchanges. They can be complex and often carry higher risks compared to stocks, particularly because they can expire worthless.
Step-by-step explanation:
When asked whether stock options pay dividends, it's important to understand the nature of stock options as compared to stocks. Stock options are financial derivatives that give the holder the right to buy or sell a stock at a specified price within a specific time period, but do not involve ownership of the stock until exercised, and therefore do not pay dividends.
By contrast, when someone buys stock, they buy a portion of a company and may earn the right to share in the company's profits through dividends if the company pays them. Stock options are traded on exchanges, and they are often seen as complex instruments because they involve various factors such as strike price, expiration date, and the volatility of the underlying stock.
Furthermore, options can be more risky than owning stocks because they can expire worthless if the stock does not move as anticipated. Trading stock options requires a good understanding of the market and the specific factors that influence option pricing.
The correct answer to the question is A) are traded on exchanges. Stock options indeed are traded on exchanges where investors can buy and sell these financial instruments. Unlike stocks, they do not pay dividends and can often be more complex and riskier than stocks themselves.