Question

Kumar owns an option that grants him the right to purchase shares of goyne medical stock at $32.25 per share. currently, the stock is selling for $47.30 per share. kumar wants to realize his profits but must wait ten more days before he is allowed exercise the option. kumar owns a(n):

Multiple Choice
O straight bond.
O American call.
O American put.
O European call.
O European put.

Answer 1

Kumar owns a European call option, which allows him to buy shares at a set price on a specific date. The option has potential for profit since the current stock price is higher than the strike price, but he must wait until the expiration date to exercise the option.

Step-by-step explanation:

Kumar owns a European call option. This type of option gives the holder the right to purchase shares at a specified price, known as the strike price, on the expiration date. Since Kumar must wait ten more days before exercising his option, it indicates that the option can only be exercised on a specific date, which is characteristic of European options.

In this case, the stock price is significantly above the strike price ($47.30 vs. $32.25). This means that Kumar has the potential for a capital gain since he has the right to buy the stock at a much lower price than the current market value. However, he must wait until the option's maturity date before he can exercise this right and realize his profits.

Options trading is a way to speculate on the price movement of a stock without owning the stock itself. It can lead to either high profits or losses, depending on how the stock's market price moves relative to the strike price of the option.