The value of a call option just prior to expiration is (where V is the underlying asset's market price and X is the option's exercise price)
A) Max [0, V - X]
B) Max [0, X - V]
C) Min [0, V - X]
D) Min [0, X - V]
E) Max [0, V X]

Question

The value of a call option just prior to expiration is (where V is the underlying asset's market price and X is the option's exercise price)
A) Max [0, V - X]
B) Max [0, X - V]
C) Min [0, V - X]
D) Min [0, X - V]
E) Max [0, V > X]

Quizplus · Accepted Answer

Just prior to expiration, the value of a call option is the maximum of zero and the difference between the underlying asset's market price and the option's exercise price (Max [0, V - X]). If the market price is greater than the exercise price, then the option is in-the-money and it is worth exercising. If the market price is less than the exercise price, then the option is out-of-the-money and it will not be exercised, so its value is zero.

The Value of a Call Option Just Prior to Expiration