You own a call option on a stock and the strike price of the option is $30.The option has 3 weeks until expiration and the stock is currently priced at $35 per share.What is the largest payout possible for this call option? Ignore the original cost of the option for the payout calculation.

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy the underlying stock at the strike price. If the stock price rises above the strike price, the option holder can exercise the option and buy the stock at the lower strike price and then sell it at the higher market price for a profit. Since the stock is currently priced at $35 per share and the strike price is $30, there is potential for unlimited profit if the stock price continues to rise. Therefore, the largest payout possible for this call option is unlimited, making choice D the correct answer.

You Own a Call Option on a Stock and the Strike