call options?

Question

If the owner of a call option with a strike price of $35 finds the stock to be trading for $42 at expiration, then the option:

A. expires worthless.
B. will not be exercised.
C. is worth $7 per share.
D. cost too much initially.

Answer 1

The value of a call option on the expiration date is the maximum of zero or the asset price minus the strike price. Since 42-35 is equal to 7, the correct answer is C.

C is always true.

A is always false since the contract is not worthless.

B could be true or false. Instead of exercizing the contract, the owner could sell it. If he sells it to someone who is short the contract, it will not be exercised. He is unlikely to just let it expire unless he likes throwing money away.

D could be true or could be false -- butis not implied by the facts. This question does not ask if he made a profit -- only what it is worth now.

Answer 2

Whoa!!!
You are missing a crucial part of the question here...
where the hell is the contract price? Without that I cant tell you if the option contract is 'in the money' or not.
It almost sounds like a trick question...because not contract price was given, so i don't know how much was initially paid for the contract and it mentions the stock price at expiration...which means you couldn't exercise the option anyway...
i would say that the answer is A)...as the contract is expired and therefore worthless.

Answer 3

C. is worth $7 per share.

Of course we still dont know the cost of the original investment for the call option, so we dont know the total profit off of the purchase.