Explanation

Counterparty credit risk refers to the risk that the counterparty to a financial contract will default on their obligations. Let's analyze both scenarios:

1. Profitable Long Forward Position

• In a long forward position, the buyer agrees to purchase an asset at a predetermined price at maturity.
• If the market price at maturity is higher than the forward price, the long position is profitable.
• At maturity, the seller (short position) owes the buyer the difference between the market price and forward price.
• If the seller defaults, the buyer loses this profit.
• Therefore, the buyer faces counterparty credit risk in a profitable long forward position.

2. In-the-Money Long Call Option Position

• In a long call option, the buyer has the right (but not obligation) to purchase an asset at the strike price.
• If the market price is higher than the strike price at expiration, the call is in-the-money.
• The buyer would exercise the option to buy at the lower strike price.
• The seller (writer) of the call option must deliver the asset at the strike price.
• If the seller defaults and fails to deliver, the buyer loses the opportunity to profit from the price difference.
• Therefore, the buyer also faces counterparty credit risk in an in-the-money long call option position.

Key Difference from Options vs. Forwards

• For forwards: Both parties face counterparty risk throughout the contract's life.
• For options: Only the buyer faces counterparty risk (the seller receives the premium upfront and has no further obligations).
• At maturity, the risk materializes only if the position is profitable/in-the-money.

Conclusion: The buyer faces counterparty credit risk from the seller in both scenarios, making option C correct.