Jillian owns an option which gives her the right to purchase shares of WAN at a price of €20 a share.Currently,WAN equity is selling for €24.50.Jillian would like to profit on this share 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 will decline significantly over the next two week.
IV.Jillian cannot profit today from the price increase in WAN.

Question

Quizplus · Accepted Answer

Jillian owns a call option because she has the right to buy shares at a certain price. She cannot exercise her option for another two weeks, so it must be a European call option. If she believes the price of WAN will decline significantly over the next two weeks, she should sell her option today to lock in her profit.

Jillian Owns an Option Which Gives Her the Right to Purchase