Suppose You Own a Call Option on a Stock with a Strike

question 21

Multiple Choice

Suppose you own a call option on a stock with a strike price of $20 that expires today. The price of the underlying stock is $15. If you exercise the option and immediately sell the stock:

• A) you will earn $5.
• B) you will lose $5.
• C) you will lose $15.
• D) you will earn $15.

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Definitions:

Werther Syndrome

A phenomenon where high-profile suicides lead to an increase in suicide rates among the populace, influenced by media coverage and social suggestion.

Choreomania

A phenomenon of mass dancing or outbreaks of group dancing that occurred in Europe, particularly during the Middle Ages.

Mass Hysteria

A phenomenon where collective illusion of a threat spreads among a population, leading to fear and irrational behavior.

Tulipmania

A period in the Dutch Golden Age where contract prices for tulip bulbs reached extraordinarily high levels and then dramatically collapsed.