Suppose you purchase a call option for $5 and a strike price of $20.On the expiration day,the price of the stock is $30.What is the return on the call option if you hold your position until maturity?
A)25%
B)50%
C)75%
D)100%
E)0%

Question

Quizplus · Accepted Answer

The option is in the money as the stock price is above the strike price of $20. The profit from exercising the option would be $30 - $20 = $10. However, since the option was purchased for $5, the net profit is $10 - $5 = $5. Thus, the return on the call option is the net profit divided by the initial cost of the option: $5 / $5 = 1 or 100%.

Suppose You Purchase a Call Option for $5 and a Strike