Instructions - Page 1 of 3

  • Rounds

    The experiment consists of 10 rounds.

  • Introduction

    You are an investor in the stock market who has bought an American call option and your task in each round is to decide whether you wish to exercise or to sell the option and, if so, at what time.

  • Exercising an American Call Option

    A call option is a contract between you, the buyer, and the seller of a particular stock, such that the seller is obliged to sell the stock to you at a certain future time (the expiration date) for a certain price (the strike price), should you decide to exercise the option, which is your decision to make. If the price of the stock rises and is above the strike price on the expiration date, you can make a profit by exercising the option and selling the stock on, otherwise the option is worthless and you may allow it to lapse.

    With an American call option, you are in addition allowed to exercise the option at any time during its lifetime; you don't have to wait until the expiration date.

  • Selling a Call Option

    You can also make a profit by selling a call option on the open market during its lifetime. You receive a fair market price for the option which takes into account the current price of the stock. You are not told what this price is until after you sell but you are invited to guess what it should be; the number you enter as a guess does not affect the price you receive, which is always the fair market price.