Problems 1 through 3: Analyzing Call Option Premiums A call option is a type of financial contract that gives the owner the right to purchase an asset at a specified price (called the strike price) within a specific time period. Suppose you buy a call option contract with a $25 strike price for a fake company called "Calculus Learners Enc." (which we will abbreviate with the fake stock ticker CALC) - at any time before the expiration of the contract, you may choose to exercise the option and buy 100 shares of CALC (called the underlying asset) at $25 per share, regardless of the price that the shares are selling on the stock m arket. lf CALC is trading at less than $25 per share on the market, the option is considered out of the money (abbreviated OTM ) - the market value is lower than the strike price and you are unlikely to want to exercise the option. If CALC is trading at more than $25 per share on the market, the option is considered in the money (abbreviated ITM) . the market value is higher than the strike price, and you might consider exercising the option or selling the contract to someone else for a profit. If CALC is trading at $25 per share on the market, the option is considered at the money (abbreviated ATM) - the market value and the strike price are equal. Whether you choose to exercise the option or not, there is still a cost associated with purchasing the contract in the first place. Options that are OTM are less expensive to purchase than options that are ITM, in part because there is little incentive to exercise OTM options; the contract may end up expiring without being exercised and you will have lost the premium you paid for the contract . Over time, the value ofthe contract will change as the price of the underlying asset changes and as time gets closer to the expiration date . Some traders never actually exercise options, but rather buy and sell the contracts to take advantage of the fluctuating premium . Other investors buy and sell options as "insurance'I (also called a hedge) to help reduce the risk of their investments. There are manyfactors that go into making decisions when buying, selling, and exercising options, but we would like to focus on just the price of the contract itself (the premium)