Correct Answer: A

Explanation:

When a firm sells an option, it receives the premium upfront from the counterparty. This means the firm has no credit exposure to the counterparty because:

• The premium is paid immediately at the beginning of the transaction
• The firm has already received the payment and has no further claims against the counterparty
• The counterparty cannot default on a payment that has already been made

In contrast, if the firm were buying an option, it would have counterparty credit risk because:

• The firm would pay the premium upfront
• The counterparty would have an obligation to deliver the option payoff if it becomes profitable
• The counterparty could default on this future obligation

All the given information about the option parameters (time to expiration, strike price, underlying price, volatility, risk-free rate) is not needed to answer this question, as the key insight is understanding the directional nature of counterparty credit risk in option transactions.

Key Concept: Selling options creates zero counterparty credit exposure; buying options creates counterparty credit exposure.