Peter Lemmings purchased a call option on XYZ Stock with a strike price of $50.
A) Peter will exercise the option if the price of XYZ Stock at expiration is $30.
B) Peter will exercise the option if the price of XYZ Stock at expiration is above $50.
C) Peter will let the option expire if the price of XYZ Stock at expiration is $60.
D) Peter will buy a put option to close out his position if the price of XYZ Stock at expiration is above $60.

Question

Quizplus · Accepted Answer

Peter purchased a call option with a strike price of $50, which means he has the right to buy the stock at $50. If the price of the stock at expiration is above $50, then it would be advantageous for Peter to exercise his option and buy the stock at the lower strike price. If the price is below the strike price, he would not exercise the option as he would be better off buying the stock on the open market at a lower price. Therefore, choice B is the best answer.

Peter Lemmings Purchased a Call Option on XYZ Stock with a Strike