When exercised, an option written on which of the following items must be settled in cash?
Equity index
Preferred stock
Master limited partnership
Exchange-traded funds (ETFs)
Step by Step Explanation:
Equity Index Options: These are cash-settled because the underlying asset is not a physical security but a theoretical value representing the index.
Incorrect Options:
Preferred Stock, Master Limited Partnerships, and ETFs: These involve physical delivery of the underlying asset upon exercise.
Options Clearing Corporation (OCC) Guidelines: OCC Cash-Settled Options.
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