Explanation:
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:
So the statement oversimplifies the exercise condition.
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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