A call option on APPL stock with an expiration date of January 20, 2022 has a strike price of $160. The current stock price of AAPL is $142. The option premium is $12. If I buy this option today, which of the following statements is true? Assume each option is for 1 underlying share. OI pay a price of $12 to the option seller. I purchase 1 APPL share at a price of $160 today. I sell 1 APPL share at a price of $142 today. I purchase 1 APPL share at a price of $160 today.
A call option on APPL stock with an expiration date of January 20, 2022 has a strike price of $160. The current stock price of AAPL is $142. The option premium is $12. If I buy this option today, which of the following statements is true? Assume each option is for 1 underlying share. OI pay a price of $12 to the option seller. I purchase 1 APPL share at a price of $160 today. I sell 1 APPL share at a price of $142 today. I purchase 1 APPL share at a price of $160 today.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:A call option on APPL stock with an expiration date of January 20, 2022 has a strike
price of $160. The current stock price of AAPL is $142. The option premium is $12.
If I buy this option today, which of the following statements is true? Assume each
option is for 1 underlying share.
I pay a price of $12 to the option seller.
O I purchase 1 APPL share at a price of $160 today.
OI sell 1 APPL share at a price of $142 today.
I purchase 1 APPL share at a price of $160 today.
Question 11 of 16
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Expert Solution
Step 1
A call option gives the buyer/holder the right but not the obligation to buy the underlying (in this case Apple stock) at strike price by paying the seller of the option a premium. At expiry the payoff you receive will be determined by the equation below:
Maximum value between (Stock price at expiry - strike price,0)
A call option will only have value if the stock price at expiry is higher than strike price.
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