If a Stock Option Is "Underwater" What Does That Mean

question 264

Multiple Choice

If a stock option is "underwater" what does that mean?

• A) The company has experienced flood damage to its facilities and cannot pay off on any stock options.
• B) The federal government has blocked the company from paying off stock options.
• C) The market price of the stock that the option applies to is lower than the option price.
• D) The market price of the stock that the option applies to is higher than the option price.
• E) The person holding the stock option will not exercise it because it would constitute poor public relations (the option is therefore "underwater" and out of sight).

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Definitions:

Output Level

The quantity of goods or services produced by a firm or industry at a given time.

Average Variable Cost (AVC)

The total variable cost divided by the quantity of output produced. It represents the variable cost of producing each additional unit.

Marginal Cost

The price of making one more unit of a product or service.

Average Product

The output per unit of input, such as labor or machinery, typically used in the context of analyzing production efficiency.