Suppose you purchase a call option for $5 and an exercise price of $20. On the expiration day, the price of the share is $30. What is the return on the call option if you hold your position until maturity?
A)50%
B)75%
C)100%
D)25%

Question

Quizplus · Accepted Answer

The payoff for the call option is the difference between the share price and the exercise price, which is $10 ($30 - $20). Since you paid $5 for the option, your profit is $5. Therefore, the return on the call option is (profit/cost) x 100% = ($5/$5) x 100% = 100%.

Suppose You Purchase a Call Option for $5 and an Exercise