The lowest value a call option can have is: A) zero, because it is a limited liability instrument. B) S_T, because the basis of value is the stock price. C) S_T - 0, because it is a limited liability instrument. D) X - S_T, because the exercise price is the hurdle.

Question

Quizplus · Accepted Answer

A call option's value cannot go below zero because the holder is not obligated to exercise the option if it is out-of-the-money, thus limiting the loss to the premium paid for the option.

The Lowest Value a Call Option Can Have Is