You wrote a $40 call option on a stock that has a market price of $43. Which one of the following statements must be correct if the option expires three months from now?
A)Your option currently has zero intrinsic value.
B)Your option currently has a negative payoff.
C)You have the right to purchase shares at $40 a share.
D)Your option payoff will increase if the market price of the stock increases.
E)If the market price remains stable, you will make the decision to exercise this option prior to expiration.

Question

Quizplus · Accepted Answer

B) Your option currently has a negative payoff because it is a call option with a strike price of $40, and the market price of the stock is $43. This means if the option were exercised now, it would be "in the money" by $3 per share, indicating a loss for you as the writer of the call option since you would have to sell the stock at $40 while its market value is $43.

You Wrote a $40 Call Option on a Stock That