Call Options on XYZ Corporation's Common Stock Trade in the Market

question 3

Multiple Choice

Call options on XYZ Corporation's common stock trade in the market. Which of the following statements is most correct, holding other things constant?

• A) The price of these call options is likely to rise if XYZ's stock price rises.
• B) The higher the strike price on XYZ's options, the higher the option's price will be.
• C) Assuming the same strike price, an XYZ call option that expires in one month will sell at a higher price than one that expires in three months.
• D) If XYZ's stock price stabilizes (becomes less volatile), then the price of its options will increase.
• E) If XYZ pays a dividend, then its option holders will not receive a cash payment, but the strike price of the option will be reduced by the amount of the dividend.

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Definitions:

Instrument

Any writing that serves as evidence of the right to payment of money.

Writing

The representation of language in a textual medium through the use of a set of signs or symbols.

After-Acquired Property

Property not owned by a debtor at the time of a security agreement but acquired later and subsequently becomes subject to the security interest.

Security Interest

A security interest is a legal right granted by a debtor to a creditor over the debtor's property, ensuring the property may be used as collateral for the repayment of a debt.