Tiffany would like to own shares of Blackwood, Inc. but only if she can acquire them at a total cost of $30 a share or less. Blackwood is currently trading at $31.76. Cynthia should with a strike price of $30. Ignore transaction costs.
A) buy a call
B) buy a put
C) write a call
D) write a put

Question

Quizplus · Accepted Answer

A call option gives the holder the right to buy the underlying asset at a specified price (the strike price) on or before a certain date. In this case, Tiffany wants to acquire shares of Blackwood, Inc. at a total cost of $30 a share or less. The current trading price of Blackwood is $31.76, which is higher than Tiffany's desired price. By buying a call option with a strike price of $30, Tiffany can lock in the right to buy the shares at $30 per share, regardless of the future market price. If the market price of Blackwood rises above $30, Tiffany can exercise her call option and buy the shares at the lower strike price, resulting in a profit.

Tiffany Would Like to Own Shares of Blackwood, Inc