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7-Consider a call option on an Amazon share with a strike price of $22.50 and assume...

7-Consider a call option on an Amazon share with a strike price of $22.50 and assume that at maturity date the stock price is $27. What is the payoff of the call option at the maturity date?

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Answer #1

The payoff of the call option on the Amazon share will be calculated as follows

Payoff on call option= (price at the maturity -strike price - premium paid)

= (27-22.50)= (4.5- Call option premium)

One can write the overall answer as $4.5, but it has to be considered that call options are bought by paying a call option premium and the buying price should be adjusted with the pay off.

so this call option will be exercised and it will be giving a profit except the premium paid will be of $4.5.

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