Eduardo Owns an Option That Gives Him the Right to Purchase

question 15

Multiple Choice

Eduardo owns an option that gives him the right to purchase shares of ABC stock at a price of $18 a share.Currently,the stock is selling for $21.60.He would like to profit on this stock but is not permitted to exercise his option for another 2 weeks.Contrary to other investors,he believes the stock price will decline significantly over the next 2 weeks.Given this situation,he should

• A)sell his option today.
• B)buy call options today that expire in 2 weeks.
• C)wait for 2 weeks and then immediately exercise his option.
• D)purchase shares of ABC today and then sell his option in 2 weeks.
• E)just forget about it because he cannot profit from this situation.

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Definitions:

Cyclohexane

A saturated hydrocarbon with the chemical formula C6H12, commonly used as a solvent or in the manufacture of other chemicals.

Methylcyclohexane

A saturated hydrocarbon with the formula C7H14, characterized by a methyl group attached to a cyclohexane ring, used as a solvent and in organic synthesis.

Cycloheptane

A cyclic alkane with the molecular formula C7H14, consisting of a ring of seven carbon atoms.

Phenol

An aromatic organic compound with the formula C6H5OH, used as an antiseptic and a raw material in the synthesis of plastics.