Question

When the holder (owner) of an index option exercises the contract, the account of the holder will be A) debited the out-of-the money amount. B) debited the in-the-money amount. C) credited the out-of-the-money amount. D) credited the in-the-money amount.

Answer 1

Answer:

credited the in-the-money amount.

Explanation:

When an option is excersised the owner of the option decides to initiate a financial transaction that is carried out by both parties. At the end of the transaction the option contract is terminated.

In this kind of transaction settlement is in cash and not stock. So the option writer takes money to the option buyer and the amount is equal to the value of the option in-the-money.

This will result in a credit to the in-the-money amount.