Question: Number 5. What is the difference between an American option and a European option? Does the holder of an option have to exercise it? Explain

Number 5.

  1. What is the difference between an American option and a European option?
  2. Does the holder of an option have to exercise it?
  3. Explain why the following statement is true or false.

A put seller is at risk of losing money if the underlying price increases.

  1. Explain why the following statement is true or false.

A call seller is obliged to buy the underlying share at the exercise price.

  1. What is the maximum profit potential if you long a call or put option?

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