Long Call Option Risk and Expiration Outcome
An investor purchases 5 XYZ June 70 Calls at 3.00. At expiration, XYZ stock is trading at $68. What is the investor's financial outcome?
Call options with a strike price of $70 expire worthless when the stock closes at $68. The investor loses 100% of the premium paid (5 contracts × $3.00 × 100 = $1,500).
Complete Analysis & Legal Rationale
A call gives the right to buy at $70. If stock is at $68 in the market, buying at $70 makes no economic sense. The calls expire unexercised and worthless. Total loss is the initial debit: 5 contracts × $300 = $1,500.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Identifies out-of-the-money expiration and full loss of $1,500 premium paid.
Out-of-the-money calls are never exercised.
Understates total loss by failing to account for all 5 contracts.
There is zero intrinsic value when stock ($68) is below strike ($70).
Official Standard: Options Clearing Corporation (OCC) expiration and automatic exercise thresholds.