If a Stock Option Is "Underwater" What Does That Mean

question 264

Multiple Choice

If a stock option is "underwater" what does that mean?

• A) The company has experienced flood damage to its facilities and cannot pay off on any stock options.
• B) The federal government has blocked the company from paying off stock options.
• C) The market price of the stock that the option applies to is lower than the option price.
• D) The market price of the stock that the option applies to is higher than the option price.
• E) The person holding the stock option will not exercise it because it would constitute poor public relations (the option is therefore "underwater" and out of sight).

---

Definitions:

Yield To Maturity

The cumulative earnings forecasted from a bond assuming it is kept until its expiration date.

Annual Coupon

The yearly interest payment made to bondholders, generally expressed as a percentage of the bond's face value.

Face Value

The face value or the amount in dollars shown on a bond, note, or any financial instrument, representing its value upon reaching maturity.

Current Yield

A financial ratio that calculates the annual interest or dividends received from an investment as a percentage of the current market price.