Andrea wrote a three-month call on Echo stock. The option cost $200 and the strike price was $10. What does the market price of Echo have to be for Andrea to break-even on this investment if the option is exercised? Ignore transaction construed taxes.
A) $10
B) $12
C) $8
D) cannot be determined from the information provided

Question

Quizplus · Accepted Answer

To break even on a call option, the market price of the underlying stock at exercise must be equal to the strike price plus the cost of the option. Here, that's $10 (strike price) + $200 (cost of the option, which needs to be adjusted to per-share basis assuming standard contract sizes, typically 100 shares, making it $2 per share) = $12.

Andrea Wrote a Three-Month Call on Echo Stock