A call option on a stock has an exercise price of $34.50.If the stock price at expiration is $37.50,what is the option payoff for a short call position?
A)$34.50
B)$0
C)$3
D)-$3
E)-$34.50

Question

Quizplus · Accepted Answer

The payoff for a short call position is the opposite of the payoff for a long call position. 
Since the stock price at expiration is above the exercise price, the owner of the call option would choose to exercise the option and buy the stock at the exercise price to immediately sell it at the market price for a profit. 
However, as the writer of the call option (i.e. the short call position), you are obligated to sell the stock at the exercise price if the option is exercised. 
Therefore, you would have to sell the stock at $34.50 even though the market price is higher at $37.50, resulting in a loss of $3. Answer D is correct.

A Call Option on a Stock Has an Exercise Price