Suppose the current price of a share of ABC stock is $188. You buy a call option (June 2020 expiration date and $190 strike price) on ABC stock at a call premium of $4. If the price of ABC stock on the expiration day is $189, the payoff and profit of your investment on the call option will be:
A. 
$1 (payoff) and $3 (profit) 

B. 
$1 (payoff) and $5 (profit) 

C. 
$1 (payoff) and $3 (profit) 

D. 
$0 (payoff) and $4 (profit) 

E. 
$0 (payoff) and $4 (profit) 
The payoff is computed as shown below:
= Price at expiration  Strike price
= $ 189  $ 190
=  $ 1
In case of buying a call option, the payoff cant be negative. Hence it will be $ 0
Profit is computed as shown below:
= Price at expiration  strike price  premium paid
= $ 189  $ 190  $ 4
=  $ 5
In case of buying a call option, the maximum loss is restricted to the amount of premium paid which in this case is $ 4.
So, the correct answer is option E.
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