A stock currently sells for $34 a share but is expected to increase in value over the next six months to at least $36 a share. Assume there are 6-month options available on this stock with an exercise price of $35. Which of these options should have the most value today?

Question

Quizplus · Accepted Answer

Given the stock's expected increase in value to at least $36, an American call option, which allows buying the stock at $35 before or at expiration, is most valuable. Unlike European options, American options can be exercised any time before expiration, providing more flexibility and potential for profit given the stock's anticipated price rise.

A Stock Currently Sells for $34 a Share but Is