Asked by marlon moonsammy on May 05, 2024
Verified
The maximum loss a buyer of a stock call option can suffer is equal to
A) the striking price minus the stock price.
B) the stock price minus the value of the call.
C) the call premium.
D) the stock price.
E) None of the options are correct.
Call Option
A fiscal arrangement allowing the buyer to purchase an asset at an agreed-upon price within a certain period, without the requirement to proceed with the purchase.
Call Premium
The amount by which the price of a call option exceeds its intrinsic value, often reflecting the time value of the option.
- Analyze the effects and potential drawbacks of option writing activities.
Verified Answer
NM
Nubia Mendoza
May 10, 2024
Final Answer :
C
Explanation :
The maximum loss a buyer of a stock call option can suffer is the amount paid for the call option, known as the call premium. This is because the buyer is not obligated to exercise the option; if the market price is unfavorable, they can let the option expire, losing only the premium paid.
Learning Objectives
- Analyze the effects and potential drawbacks of option writing activities.