What is the worst-case profitability scenario for an investor who sold a call on the firm's stock for a premium of $10 and a strike price of $100?
A) $90 per share profit
B) $10 per share profit
C) $0 per share profit (break-even)
D) Unlimited losses

Question

Quizplus · Accepted Answer

If the stock price rises above $100, the call option will be exercised, and the investor will have to sell the stock at the lower strike price of $100, resulting in a loss instead of a profit. However, as the stock price continues to rise, the investor's losses become unlimited. Therefore, D is the worst-case profitability scenario.

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