At contract maturity the value of a call option is ___________ where X equals the option's strike price and S_T is the stock price at contract expiration. A) Max(0, S_T - X) B) Min(0, S_T - X) C) Max(0, X - S_T) D) Min(0, X - S_T)

Question

Quizplus · Accepted Answer

At contract maturity, the value of a call option is determined by the difference between the stock price at expiration (S_T) and the strike price (X). If the stock price is greater than the strike price, the option has intrinsic value and the value of the option will be that difference (S_T - X). If the stock price is less than the strike price, the option has no intrinsic value and the value of the option will be zero. Therefore, the correct formula is Max(0, S_T - X).

At Contract Maturity the Value of a Call Option Is