Chartered Alternative Investment Analyst Association (CAIA) Exam 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

What is a unique characteristic of a perpetual option?

It can only be exercised at a predetermined time

It has no expiration date

A perpetual option is characterized by having no expiration date, which sets it apart from standard options that have a specified maturity date. This unique feature allows the holder of a perpetual option to potentially hold onto it indefinitely, giving them the advantage of waiting for favorable market conditions without the pressure of an expiration timeline.

The absence of an expiration date means that the owner can decide to exercise the option only when it is advantageous, providing more strategic flexibility compared to traditional options. In contrast, options that must be exercised at a predetermined time or that have a limited lifespan impose constraints that are not present with perpetual options.

This characteristic of lacking a time limit fosters a different valuation and risk consideration compared to other types of financial instruments, which is essential knowledge for those studying alternative investments. Understanding how perpetual options function is crucial for investment strategies that take advantage of market movements over an indefinite horizon.

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It is only a type of European option

It expires after one trading year

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