Question

Please show work

1. Consider a June 2020 Call option contract on BB Co. with an exercise price of $55 that sells for $3.40.
   1. If on the third Friday of June (the expiration date) the price of BB is as follows, fill in the chart below as is relates to the writer of the contract.

Price in June                         Value of Option Contract                 Profit/Loss for Writer

$42                                         ______________                                _______________

$56                                         ______________                                _______________

$60                                         ______________                                _______________

Answer 1

Value of option is = stock price - strike price ( it wont be negetive)

The option writer will loos value when the stock price icrease over n above strike price

Profit or loss to the call option writer is = Premium - intrinsic value( value)

Strike price = $ 55 , Premium = $ 3.40

Therefore ;

1 ; Stock price = $ 42 Value = 42-55 = 0 Profit = 3.4

2 ; Stock price = $ 56 Value =56 - 55 = $ 1 Profit = 3.4 - 1 = $ 2.4

3 : ; Stock price = $ 60 Value =60 - 55 = $ 5 0 Profit = 3.4 - 5 = - $ 1.6 ( Means Loss)