Eduardo owns an option that gives him the right to purchase shares of ABC stock at a price of $18 a share.Currently,the stock is selling for $21.60.He would like to profit on this stock but is not permitted to exercise his option for another 2 weeks.Contrary to other investors,he believes the stock price will decline significantly over the next 2 weeks.Given this situation,he should

Question

Quizplus · Accepted Answer

If Eduardo believes that the stock price will decline significantly over the next two weeks, he should sell his option today. By doing so, he can realize his profit now before the price of the stock drops. Waiting for two weeks or buying call options will not be beneficial in this situation as it would require the stock to rise in price, which Eduardo does not anticipate. Purchasing shares of ABC today and then selling his option in two weeks may also not be the best choice, as he may not be able to sell the shares at a higher price than he purchased them for, resulting in a loss. Therefore, the best choice for Eduardo in this situation is to sell his option today.

Eduardo Owns an Option That Gives Him the Right to Purchase