Question

An investor purchases a call option for $5 per share in a stock currently selling for $24 per share. The exercise price is $30 per share. On the day the option expires, the stock is selling for $29 per share. What will the investor do? What is the investor's total gain or loss?

A) Exercise the option; total gain $500
B) Allow the option to expire; total gain $500
C) Allow the option to expire; total loss $500
D) Exercise the option; total loss $100

Answer 1

The investor should allow the option to expire and will incur a total loss of $500. Option C

Step-by-step explanation:

In this scenario, the investor purchased a call option for $5 per share in a stock currently selling for $24 per share. The exercise price is $30 per share. On the day the option expires, the stock is selling for $29 per share.

Since the exercise price is higher than the current stock price, it would not be profitable for the investor to exercise the option. Instead, the investor should allow the option to expire.

The total loss for the investor would be the initial cost of the option, which is $5 per share, multiplied by the number of shares. If the investor purchased 100 shares, the total loss would be $500. Option C