Suppose you purchase a call option for $4 and a strike price of $30. On the expiration day, the price of the stock is $40. What is the return on the call option if you hold your position until maturity?
A) 125%
B) 130%
C) 150%
D) 170%

Question

Quizplus · Accepted Answer

C) Price of a call option = Stock Price - Strike Price, if Stock Price is greater than Strike Price;
Price of a call option = $0, if Stock Price is less than or equal to Strike Price.
Return = (Option payoff - cost) / cost
Option payoff = $40 - $30
Return = ($10 - $4) / $4 = 150%

Suppose You Purchase a Call Option for $4 and a Strike