A stock is selling at $85 at the expiration of an option contract. Which one of the following options on the stock will most likely be exercised?

Question

Quizplus · Accepted Answer

If the stock is selling at $85 and the exercise price of the option is $65, the owner of the option will most likely exercise the call option to buy the stock at a lower price and sell it in the market at a higher price, earning a profit. The owner of the put option with an exercise price of $85 will not exercise it as it is cheaper to buy the stock in the market at $85 instead of buying it through the option at $85. The options with an exercise price of $85 will only be exercised if the market price of the stock goes below the exercise price.

A Stock Is Selling at $85 at the Expiration of an Option