Determine the possible prices of the call at expiration.

Options and swaps | Business & Finance homework help

At expiration, the possible prices of the call are equal to its intrinsic value or zero. The intrinsic value is determined by subtracting the strike price from the current market price of the underlying asset. If the market price of underlying asset is greater than or equal to the strike price, then there will be an intrinsic value and a corresponding positive payoff for buying a call option at that point in time. For example, if a call option has a strike price of $40 and its underlying asset is currently trading at $45, then it has an intrinsic value of $5 ($45-$40). At expiration, if this same underlying asset is still trading at $45 or higher, then the call option will be worth $5; however, if it falls below $40 then it would be worthless and have no payoff for holding it until expiration.

The other possibility for pricing a call option at expiration is that it can be sold prior to expiration on secondary markets before reaching its intrinsic value. If market conditions change such that investors believe there’s more downside risk than upside potential in holding onto these options contracts until their expiry date they may opt to close out their position early and take any gains (or losses) incurred since entering into them instead. This would allow them to avoid any further risks associated with waiting until maturity which could help minimize any potential losses should something unexpected occur between now and when those options expire.