Question

Which of the following is NOT true?

A. An American option can be exercised at any time during its life.
B. A put option will always be exercised at maturity if the strike price is greater than the underlying asset price.
C. When a CBOE call option on APPLE is exercised, APPLE issues more stock.
D. An call option will always be exercised at maturity if the underlying asset price is greater than the strike price.

Answer 1

Answer: C. When a CBOE call option on APPLE is exercised, APPLE issues more stock.

Step-by-step explanation:

Option C is quite false because when a Chicago Board Options Exchange (CBOE) call option on APPLE is exercised, APPLE DOES NOT issue more stock.

This is because this is a transaction in the Secondary market that does not involve Apple. The concerned party is the Option Seller who now has to sell stock to the Option buyer most probably at a price less than the market rate.