Which one of the following is correct for the owner of a June call on XYZ Corp.with an exercise price of $60? XYZ Corp.currently trades at $55 and the option at $3.
A) XYZ stock will go to $63 per share within the option period.
B) The option should be exercised now.
C) The option owner's current profit is $3 per share.
D) The option may expire without value.

Question

Quizplus · Accepted Answer

The option is currently out of the money as XYZ Corp. is trading below the exercise price of $60. Therefore, it is unlikely that XYZ stock will go up to $63 per share within the option period. Exercising the option now would result in a loss as the owner would be buying the stock at $60, which is higher than the current market price of $55. The option owner's current profit is negative, as they paid $3 for the option and have not yet made any profit. As the option is out of the money and the option period may expire before the stock price reaches the exercise price, the option may expire without value.

Which One of the Following Is Correct for the Owner