Question

Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option?

A) You will receive $1,720.
B) You will receive $1,680.
C) You will have to pay $1,680.
D) You will receive $4,000.
E) You will have to pay $4,000.

Answer 1

By exercising the call option on the S&P 100 Index, you will receive the intrinsic value of the contract, which is $4,000, calculated by the difference between the index value and the exercise price, multiplied by the option's contract multiple.

Step-by-step explanation:

When you exercise a call option on the S&P 100 Index with an exercise price of 1,680, and the index is currently at 1,720, each contract typically represents a multiple of the index, commonly $100 times the index. Therefore, the intrinsic value of the option is the difference between the index level and the exercise price, multiplied by the contract multiple. In this case, the intrinsic value is (1,720 - 1,680) × $100, which equals $4,000. So, the correct answer is D) You will receive $4,000.