Asked by Courtney Morris on Apr 26, 2024
Verified
Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,700, and the index is now at 1,760. What will happen when you exercise the option?
A) You will have to pay $6,000.
B) You will receive $6,000.
C) You will receive $1,700.
D) You will receive $1,760.
E) You will have to pay $7,000.
S&P 100 Index
Is a stock market index that measures the stock performance of 100 major companies listed on stock exchanges in the United States.
Exercise Price
The predetermined price at which the holder of an option can buy (call option) or sell (put option) the underlying security or commodity.
Option
An option is a financial derivative that represents a contract sold by one party to another, offering the right, but not the obligation, to buy or sell a security at an agreed-upon price within a certain period of time.
- Acquire knowledge on the foundational notions of options, such as calls and puts.
Verified Answer
DN
Donia NimehApr 30, 2024
Final Answer :
B
Explanation :
When you exercise a call option, you profit from the difference between the current market price and the exercise price, if the market price is higher. Here, the difference is 1,760 - 1,700 = 60 points. Since each point in the S&P 100 Index option is worth $100, you will receive 60 * $100 = $6,000.
Learning Objectives
- Acquire knowledge on the foundational notions of options, such as calls and puts.