Andrea wrote a three-month call on Echo stock.The option cost $200 and the strike price was $10.What does the market price of Echo have to be for Andrea to break-even on this investment if the option is exercised? Ignore transaction construed taxes.
A) $10
B) $12
C) $8
D) Cannot be determined from the information provided

Question

Quizplus · Accepted Answer

To break even, the market price of Echo stock needs to be higher than the strike price plus the option cost. In this case, the strike price is $10 and the option cost is $200. Therefore, the break-even price is $10 + $2 (the option cost divided by the number of shares in the contract, which is 100) = $12. Option B is the only choice that meets this condition.

Andrea Wrote a Three-Month Call on Echo Stock