confused on a Schweser Q Bank question about credit risk. The “correct” answer indicates the holder of a put option has no credit risk. Aren’t they exposed to the posibility that at expiration the counter-party won’t be able to deliver the underlying at the agreed upon price?
issuer not holder has no credit risk
No current credit risk in European option. Only Potential credit risk. If this is the question I think it is, it says “current credit risk.”
Goodman, only the long has risk. Issuer is short. Didnt you memorize all this rainman?
Full explanation was: The holder of a short option position has received all the income it can expect. Thus, it has no credit risk. Both remaining listed positions have some credit risk. They obviously meant issuer when they used the term holder. Is that accurate? Isn’t the “holder” the one long the option, or can the term be used both ways? Wanted to double check before reporting error to Schweser.
holder = buyer one that wishes the option would go away = seller
Confusing terminology but not incorrect. You can hold a short option position in an account.
you should post the question maybe some hint there
barcelona 1:0
Holder of a short = Seller As others have said, there is no credit risk for the seller of an option.