SIE (Securities Industry Essentials) Practice Exam

Exercise of an equity put option involves the writer:

1. Selling the underlying instrument at the market price

2. Buying the underlying instrument at the strike price

3. Assigning the option to another party

4. None of the above

The correct answer is: Buying the underlying instrument at the strike price

When buying a put option, the writer (also known as the option seller) issues a contract giving the holder the right to sell the underlying asset at a specified price (strike price) within a specific time frame. The key word here is "option seller." The seller does not have to own the underlying asset, they are simply giving the buyer the option to sell at a certain price. This option can be assigned to another party, but the writer is not the one assigning it. Option A is incorrect because the writer is not selling the underlying asset, they are selling the option. Option C is also incorrect because the option can be assigned, but it is not the writer who assigns it. Option D is incorrect because the writer is actively involved in the exercise of the equity put option by issuing the contract.