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FP$513$ November Investment Planning

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Question $26$ of $85$

Question ID: $1240674$

An investor owns a call option on XYZ that expires in three months and has a strike price of $$130$ per share. The current price of $xYZ$ stock is $$125$ per share, and the current market price of the option is $\frac{31}{8}.$ Which of the following actions should the investor take, and why?

A$)$ Exercise the option, because the excess of the strike price over the market price would result in an immediate gain of $$5$ per share.

B$)$ Exercise the option, because the market value of the option $($$$\frac{31}{8})$ is above zero.

C$)$ Do not exercise the option, because the intrinsic value of the option $($ $$\frac{1281}{8}$ is less than the strike price of the option $($$$130).$

D$)$

D$)$ Do not exercise the option, because the strike price exceeds the market price and the transaction would result in an immediate loss.

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