Which one of the following is true for the owner of a call option?
A) The loss potential is unlimited.
B) The profit potential is unlimited.
C) The option price exceeds the exercise price.
D) There is no expiration date, unless the option is a European call.

Question

Quizplus · Accepted Answer

The owner of a call option has the potential to profit unlimitedly because the option gives them the right to buy the underlying asset at a set price (exercise price) while the market price may be much higher. However, the loss potential is limited to the premium paid for the option. Neither C nor D is true for all call options. Option price can be higher, lower or equal to the exercise price depending on various factors, and all options have an expiration date. A is also incorrect because the loss potential is limited to the premium paid for the option, not unlimited.

Which One of the Following Is True for the Owner