Jillian owns an option which gives her the right to purchase shares of WAN stock at a price of $20 a share. Currently,WAN stock is selling for $24.50. Jillian would like to profit on this stock but is not permitted to exercise her option for another two weeks. Which of the following statements apply to this situation?
I. Jillian must own a European call option.
II. Jillian must own an American put option.
III. Jillian should sell her option today if she feels the price of WAN stock will decline significantly over the next two weeks.
IV. Jillian cannot profit today from the price increase in WAN stock.

Question

Quizplus · Accepted Answer

Jillian must own a European call option because she cannot exercise it until a future date (statement I). If she believes the stock price will decline, selling the option now could be beneficial (statement III).

Jillian Owns an Option Which Gives Her the Right to Purchase