Steve owns an option that grants him the right to purchase shares of LK Tool stock at $45 a share. Currently, the stock is selling for $52.40 a share. Steve would like to realize his profits but is not permitted to exercise the option for another two weeks. Which one of the following does Steve own?

Question

Quizplus · Accepted Answer

Steve owns a European call option, which gives him the right to buy shares at a specified price (strike price) but only allows him to exercise this option on a specific date, not before. Since he cannot exercise the option for another two weeks, it indicates that it's a European-style option. The fact that he wants to buy shares at a lower price than the current market price indicates it's a call option, not a put option.

Steve Owns an Option That Grants Him the Right to Purchase