Chartered Alternative Investment Analyst Association (CAIA) Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Chartered Alternative Investment Analyst Association (CAIA) Exam with structured quizzes, flashcards, and detailed explanations. Study efficiently and boost your confidence for the test!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is a unique characteristic of a perpetual option?

It can only be exercised at a predetermined time
It has no expiration date
It is only a type of European option
It expires after one trading year

The correct answer is: 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.