Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share
A) increases to $504.
B) decreases to $490.
C) increases to $506.
D) decreases to $496.
E) None of the options are correct.

Question

Quizplus · Accepted Answer

For the holder of the call option to earn a profit, the price of the share must exceed the sum of the exercise price ($500) and the premium paid for the option ($5), which totals $505. Therefore, if the price increases to $506, the holder can buy the stock at $500 and sell it for $506, making a profit after covering the $5 premium.

Suppose the Price of a Share of Google Stock Is