Answer-first summary for fast verification
Answer: False
**Correct answer: False** For a **call-on-a-call**, the decision at the first exercise date depends on whether the **value of the underlying call option** exceeds the compound option strike. It is **not** simply a rule that the stock price must be greater than the first strike price. The underlying call's value depends on: - the stock price, - the underlying call strike, - time remaining to the second exercise date, - volatility, rates, and dividends. So the statement oversimplifies the exercise condition.
Author: Manit Arora
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Q-13.2. P2.T5.13. Compound options. In regard to compound options is each the following TRUE or FALSE? If the compound option is a call-on-a-call, the option will be exercised on the FIRST exercise date if the asset (stock) price is greater than the first strike price.
A
True
B
False
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