You paid $5 a call option on a stock with an exercise price of $80.If the current stock price is $60, your net proceeds by exercising this option and selling the stock will be:
A)($25).
B)$0.
C)$20.
D)$60.

Question

Quizplus · Accepted Answer

If you exercise the option, you would buy the stock at the exercise price of $80, which is higher than the current stock price of $60. Therefore, exercising the option is not optimal. The net proceeds would be $0, but you would have lost the $5 paid for the option, resulting in a net loss of $5. Selling the option itself would also result in a loss of $5. Therefore, the best choice is to not exercise the option and let it expire.

You Paid $5 a Call Option on a Stock with an Exercise