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.

---

Definitions:

Money Supply

The overall accumulation of monetary assets in an economy at a certain point, including cash, coins, and funds in checking and savings accounts.

Reserves

Assets held by a financial institution or an individual as a buffer for potential future liabilities or emergencies.

Leverage

The use of borrowed money to supplement existing funds for purposes of investment.

Bank Investments

Financial assets purchased or held by banks, including bonds, stocks, real estate, and other securities, with the aim of generating income or capital appreciation.