Suppose you purchase a call option for $5 and a strike price of $40. On the expiration day, the price of the stock is $55. What is the return on the call option if you hold your position until maturity?
A) 125%
B) 200%
C) 275%
D) 300%

Question

Quizplus · Accepted Answer

B) Price of a call option = Stock Price - Strike Price, if Stock Price is greater than Strike Price;
Price of a call option = $0, if Stock Price is less than or equal to Strike Price
Return = (Option payoff - cost) / cost
Option payoff = $55 - $40 = $15
Return = ($15 - $5) / $5 = 200%

Suppose You Purchase a Call Option for $5 and a Strike