After purchasing a call option, the buyer will exercise the option only if
A)the price of the financial asset is less than the strike price.
B)the price of the financial asset is equal to the strike price.
C)the price of the financial asset is greater than the strike price.
D)the price of the financial asset is initially less than the strike price in the long run.

Question

Quizplus · Accepted Answer

The buyer of a call option will exercise the option only if the price of the financial asset is greater than the strike price. The buyer will only make a profit if they can buy the asset at the agreed-upon strike price and then sell it for a higher price in the market. Therefore, they will not exercise the option if the price of the financial asset is less than or equal to the strike price. And the option’s long run effect is irrelevant to the buyer's decision to exercise the option.

After Purchasing a Call Option, the Buyer Will Exercise the Option