
Explanation:
The last trading day for American options, such as the one held by Xiamen Lee, is typically the third Friday of the month in which the contract is set to expire. This is a standard practice in the United States and most other exchanges around the world. Therefore, since Xiamen's contract is set to expire in September, the last day he can trade his call option is the third Friday of September. It's important to note that while the last trading day is the third Friday of the month, the actual expiration date of the contract is the Saturday following this Friday. However, since trading does not occur on Saturdays, the practical deadline for trading the option is the preceding Friday.\n\nChoice A is incorrect. The third Friday of August cannot be the last trading day for the call option as American options can be exercised at any point until their expiration, which in this case is September. Therefore, it would not make sense for the last trading day to be in August.\n\nChoice B is incorrect. The third Monday of September cannot be the last trading day of the call option because typically, options expire on the third Friday of their expiration month, not Monday.\n\nChoice C is incorrect. Similar to choice A, it would not make sense for the last trading day to be in August when Xiamen's contract expires in September.
Q.735 Xiamen Lee has a long position in an American call option on oil futures contract with a strike price of $40 per contract expiring in September. The current price of the oil futures contract has increased to $46, but the investor believes that the price of the contract can further increase. Since it is an American option, the investor can exercise the contract anytime until its expiration in September. Which of the following is the last day on which Xiamen can trade his call option?
A
The third Friday of August is the last trading day of the call option.
B
The third Monday of September is the last trading day of the call option.
C
The third Monday of August is the last trading day of the call option.
D
The third Friday of September is the last trading day of the call option.
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