CFA Practice Question

There are 206 practice questions for this study session.

CFA Practice Question

When a call option on a future is exercised, the buyer receives ______.

A. an option to purchase the underlying future
B. a long position in the underlying future and a cash payment
C. the physical good
Correct Answer: B

The underlying asset of a call option on a future is the futures contract. When a call futures option is exercised, the buyer receives a long position in the future and a cash payment equal to the cash settlement price minus the exercise price of the futures option. Since the underlying asset is not a physical good, no physical good is received when the call option on a future is exercised.

User Contributed Comments 3

User Comment
johntan1979 Isn't that amazing? Make money on the option (in-the-money), and then make more money on the future.
Inaganti6 how is money made on the option...call had to be paid for.....short put and short call i can understand as you get the premium.
Kiniry Does the cash payment come from the mark-to-market on the future once you actually own it?
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