Eduardo Owns an Option Which Gives Him the Right to Purchase

question 68

Multiple Choice

Eduardo owns an option which 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 two weeks.Which of the following statements apply to this situation?
I.He must own a European call option.
II.He must own an American put option.
III.He should sell his option today if he feels the price of the stock will decline significantly over the next two weeks.
IV.He cannot profit today from the price increase in the stock.

• A)I and III only
• B)II and IV only
• C)I and IV only
• D)II and III only
• E)I,III,and IV only

---

Definitions:

Performance Measurement Systems

Tools and methodologies used to assess and monitor the performance of individuals, teams, and organizations against set goals and objectives.

Company's Goals

The objectives set by the management or stakeholders of a company outlining the intended direction and desired outcomes over a certain period.

Operating Income

The profit generated from a company's everyday business operations, excluding income from investments and extraordinary items.

Financial Condition

The Financial Condition of a business refers to its ability to manage its debts and fulfill its financial obligations, assessed through its financial statements.