You Wrote a $40 Call Option on a Stock That

question 36

Multiple Choice

You wrote a $40 call option on a stock that has a market price of $43. Which one of the following statements must be correct if the option expires three months from now?

• A)Your option currently has zero intrinsic value.
• B)Your option currently has a negative payoff.
• C)You have the right to purchase shares at $40 a share.
• D)Your option payoff will increase if the market price of the stock increases.
• E)If the market price remains stable, you will make the decision to exercise this option prior to expiration.

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Definitions:

Flexible Policy

A strategy or guideline that allows for adaptability and changes depending on circumstances or conditions.

Carrying Costs

Expenses incurred by holding or storing inventory, including insurance, storage, and handling costs.

Shortage Costs

Costs incurred when demand exceeds supply, often related to lost sales and the cost of restocking.

Current Assets

Current assets represent a company's assets that are expected to be converted into cash, sold, or consumed within one year or within the operating cycle of the business, whichever is longer.