Understanding Call Options

The video tutorial explains the financial dynamics of a call option with a $50 strike price. It covers the perspectives of both the holder and the writer of the option. The holder benefits if the stock price exceeds $50, while the writer incurs losses. The tutorial also discusses the break-even point and the mirror image relationship between the holder's and writer's payoffs.

What happens if the stock price is below the strike price at expiration?

• The option is sold.

• The option is not exercised.

• The option is exercised.

• The option is bought.

At what stock price does the holder break even if they paid $10 for the option?

• $40

• $50

• $60

• $70

What is the potential profit for the holder if the stock price is $70 at expiration?

• $40

• $30

• $20

• $10

What is the role of the writer in a call option?

• To sell the right to buy the stock.

• To buy the stock at market price.

• To exercise the option.

• To hold the stock.

What happens to the writer if the option is exercised and they do not own the stock?

• They gain $10.

• They lose $10.

• They break even.

• They gain $20.

What is the financial outcome for the writer if the option is never exercised?

• They lose $10.

• They gain $20.

• They gain $10.

• They break even.

What is the relationship between the holder's and writer's payoffs?

• They are mirror images.

• They are identical.

• They are both positive.

• They are unrelated.

What does the writer keep if the option is not exercised?

• The option

• The strike price

• The premium

• The stock

What is the break-even point for the writer?

• $40

• $60

• $50

• $70

What happens to the writer's profit if the stock price is below $60?

• It remains the same.

• It decreases.

• It becomes negative.

• It increases.