Question

The table below contains information for an XRAY, Inc. call option. XRAY common stock is currently selling for $36.80.

Expiration	Strike	Last	Volume	Open Interest
Nov	34.00	3.00	2,156	11,579

a. Is the option in the money?

b. What is the profit on this position?

c. Suppose that on the expiration date the stock’s price is $32.00. Will you exercise the call option?

Answer 1

a) Strike price of the call option is 34, current market price is 36.8, therefore option is in the money

b) We will calculate the profit from this option on at varios prices on expiry

Price on Expiry	Payoff from call	Option Premium paid	Profit/(loss)
32	0	-3	-3
33	0	-3	-3
34	0	-3	-3
35	1	-3	-2
36	2	-3	-1
37	3	-3	0
38	4	-3	1
39	5	-3	2
40	6	-3	3
41	7	-3	4
42	8	-3	5

Profit Diagram on various prices on maturity

c) If the stock price is 32 on expiration the option is out of the money and we will not excercise our call option (which is a right to buy stock at 34)