Suppose that a share of Callidus Corp sells at a price of $45 on the expiration date. Compute the payoff to the seller of a call option if the exercise price is $40.
A)-$5
B)-$40
C)-$45
D)$0

Question

Quizplus · Accepted Answer

The payoff for a call option is calculated as the difference between the stock price at expiration and the exercise price. In this case, the stock price is $45 and the exercise price is $40, so the payoff is $45 - $40 = $5. However, since the seller (or writer) of the call option is obligated to sell the stock at the exercise price, the payoff is negative, resulting in a loss of $5. Therefore, the correct answer is (A) -$5.

Suppose That a Share of Callidus Corp Sells at a Price