Back to School With Marketing Guru Ed Usset #40

When a put option is exercised, the seller of the put...

  1. is long the underlying futures contract
  2. is short the underlying futures contract
  3. pays the premium
  4. is long a call


Answer (a): When exercised, the buyer of a put option is short the underlying futures contract, because the buyer has bought the right to sell futures. The seller of the put or, in this case, the oldest seller of this particular put option, is obligated to take the other side of the market. The seller of the put ends up with a long futures position.

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