Question

Suppose you purchase ten call contracts on Kaho stock. The strike price is $75, and the premium is $4.10. If, at expiration, the stock is selling for $80 per share, what are your call options worth? What is your net profit? Value of call options Net profit

Answer 1

At expiration, there will be no time value, so the option will be left with only the Intrinsic value.

Value of Call Option = Share Price - Strike Price

= 80 - 75

= 5

As there were 10 call contracts, so value will be 5 * 10 = 50

Now Net profit will be what the investor paid net what he received.

The Investor paid a premium of 4.10 per contract and there were 10 contracts, so in total = $41

The Investor Received the value of the call, that is $50

So Net Profit = 50 - 41

= 9