When a futures call option on a commodity is exercised the option owner receives a futures contract on the commodity plus a cash payment equal to the difference between the:
A) current options price and the current futures price.
B) spot and forward futures prices.
C) strike price on the option and the current futures price.
D) exercise price and the current options price.
E) exercise price and the strike price.

Question

Quizplus · Accepted Answer

When a futures call option on a commodity is exercised, the option owner receives a long futures contract on the underlying commodity at the strike price specified in the option contract. The option owner also receives a cash payment equal to the difference between the strike price and the current futures price. This cash payment is equivalent to the intrinsic value of the option at the time of exercise.

When a Futures Call Option on a Commodity Is Exercised