If You Buy a Knock-Out Call Option with Barrier $H$ Satisfying $H > K = S$

question 22

Multiple Choice

If you buy a knock-out call option with barrier $H$ satisfying $H > K = S$ where $K$ and $S$ are the strike price and current price of the underlying,respectively,then your implied view of prices is that

• A)Prices are going up to at least the level of the barrier.
• B)Prices are going up,but at most to the level of the barrier.
• C)Prices are moving down.
• D)Prices may move up to the level of the barrier before moving down.

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Definitions:

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Costs that remain constant for a given period regardless of the level of production or sales, such as rent or salaries.

Variable Expenses

Expenses that change in proportion to the activity of a business.

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A benefit gained in financial terms, which can result from factors such as cost savings, investment returns, or other monetary gains.

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