Eduardo owns an option which gives him the right to purchase shares of ABC stock at a price of $18 a share.Currently,the stock is selling for $21.60.He would like to profit on this stock but is not permitted to exercise his option for another two weeks.Which of the following statements apply to this situation?
I.He must own a European call option.
II.He must own an American put option.
III.He should sell his option today if he feels the price of the stock will decline significantly over the next two weeks.
IV.He cannot profit today from the price increase in the stock.

Question

Quizplus · Accepted Answer

Eduardo must own a European call option because he cannot exercise it until a specific date (two weeks later). If he believes the stock price will decline, selling the option now would allow him to profit from the current price difference.

Eduardo Owns an Option Which Gives Him the Right to Purchase