Corneau Company\'s stock is trading at $30 a share. Call options on the company\

Question

Corneau Company's stock is trading at $30 a share. Call options on the company's stock are also available, one with a strike price of $25 and one with a strike price of $35. Both options expire in six months. Which of the following best describes the value of these options? The options with the $25 strike price will sell for $5 The options with the $35 strike price have an exercise value greater than $0. If the company's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5. The options with the $25 strike price will sell for less than the options with the $35 strike price. None of the above Corneau Company's stock is trading at $30 a share. Call options on the company's stock are also available, one with a strike price of $25 and one with a strike price of $35. Both options expire in six months. Which of the following best describes the value of these options?

Explanation / Answer

Answer is third option (If the company's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.)

Explanation;

As we know that when stock price increases then exercise value of the options also increases by same amount. So it is also true in given question, If the company's stock price rose by $5, the exercise value of the options with the $25 strike price would also increase by $5.

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