Suppose you purchase a call option for $4 and an exercise price of $30. On the expiration day, the price of the share is $40. What is the return on the call option if you hold your position until maturity?
A)170%
B)150%
C)130%
D)125%

Question

Quizplus · Accepted Answer

The return on the call option is calculated by taking the profit from the option, subtracting the cost of the option, and then dividing by the cost of the option. Here, the profit is ($40 - $30) = $10 per share. Subtracting the cost of the option ($4), the net profit is $6. The return is ($6 / $4) * 100% = 150%.

Suppose You Purchase a Call Option for $4 and an Exercise