A Call Option Has an Exercise Price of $100

question 73

Multiple Choice

A call option has an exercise price of $100. At the exercise date, the stock price could be either $50 or $150. Which investment strategy provides the same payoff as the stock?

• A)Lend PV of $50 and buy two calls.
• B)Lend PV of $50 and sell two calls.
• C)Borrow $50 and buy two calls.
• D)Borrow $50 and sell two calls.

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Definitions:

Stock Beta

A measure of a stock's volatility in relation to the overall market; reflects the risk associated with a specific stock.

Time to Maturity

The duration left until the final payment date of a financial instrument, critical for assessing its risk and return.

Exercise Value

The value of an option if it were exercised today; for call options, it is the current price of the underlying asset minus the strike price.

Strike Price

The fixed price at which the owner of an option can purchase (call) or sell (put) the underlying asset.