The payoff to the holder of a call option is given by
A)C = min(K - S, 0).
B)C = max(S - K, 0).
C)C = min(K, 0).
D)C = max(K - S, 0).

Question

Quizplus · Accepted Answer

The payoff to the holder of a call option is given by the formula C = max(S - K, 0), where S is the spot price of the underlying asset at expiration and K is the strike price of the option. This means the holder will exercise the option to buy the asset only if S > K, making a profit of S - K; otherwise, the option expires worthless (0 payoff).

The Payoff to the Holder of a Call Option Is