You Purchase a Call Option on a Stock

question 34

Multiple Choice

You purchase a call option on a stock.The profit at contract maturity of the option position is ___________ where X equals the option's strike price,S_T is the stock price at contract expiration and C₀ is the original purchase price of the option.

• A) Max(-C₀, S_T - X - C₀)
• B) Min(-C₀, S_T - X - C₀)
• C) Max(C₀, S_T - X + C₀)
• D) Max(0, S_T - X - C₀)

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Definitions:

Same Direction

A term indicating that two or more variables move in tandem, either increasing or decreasing together.

Y-variable

In statistical modeling and experiments, the dependent variable that is influenced or predicted by another variable (X-variable), used to measure outcomes or results.

Opposite Directions

A term indicating movements or trends that are diametrically contrary to each other in a physical or metaphorical sense.

Upward Sloping

A term often used to describe a line on a graph that shows an increase in a variable as another variable increases, indicative of a direct relationship.