An investor purchases a call option and its underlying stock on the same day. If the stock appreciates by 25%, the call option will appreciate by ________.
A) more than 25%
B) less than 25%
C) exactly 25%
D) none of the above

Question

Quizplus · Accepted Answer

When an investor purchases a call option and the underlying stock on the same day, it is known as a covered call strategy. In this case, if the stock appreciates by 25%, the call option priced will also appreciate by more than 25%. This is because the investor has already purchased the stock, and the call option will now be "in the money," which will result in a higher profit potential.

An Investor Purchases a Call Option and Its Underlying Stock