Question

You purchase 13 call option contracts with a strike price of $75 and a premium of $2.90. Assume the stock price at expiration is $82.46.

a. What is your dollar profit? (Do not round intermediate calculations.)

b. What is your dollar profit if the stock price is $68.41? (A negative value should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

Answer to A

Strike Price (A) = $ 75

No. of Call Contracts (B) = 13

Premium on each call contract (C) = $ 2.90

Total Premium paid on the call contracts (D = B x C) = $ 2.90 x 13 = $ 37.7

Now, if the share price on expiration is $ 82.46 which is greater than the Strike Price, therefore Call is in the money. Now Profit = (Share Price - Excercise Price) x No. of Contarcts - Total Premium Paid

Profit = ( $ 82.46 - $ 75) x 13 - $ 37.7 = $ 59.28

Answer to B

Strike Price (A) = $ 75

No. of Call Contracts (B) = 13

Premium on each call contract (C) = $ 2.90

Total Premium paid on the call contracts (D = B x C) = $ 2.90 x 13 = $ 37.7

Now, if the share price on expiration is $ 68.41 which is less than the Strike Price, therefore Call is out the money.

Therefore Profit = - Total Premium Paid

Profit = - $ 37.7