SIE practice questionmediumOptions
An investor purchases a call option with a $50 strike price. If the underlying stock rises to $55, what happens to the intrinsic value of the option?
- AIt increases to $5✓ Correct answer
- BIt decreases to $0
- CIt stays the same
- DIt decreases to -$5
Explanation
Why A — It increases to $5
The call option’s intrinsic value equals the stock price minus the strike price ($55 - $50 = $5). A negative value is not possible for intrinsic value; it can only be zero (if out-of-the-money) or positive.
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