Question

Last week, you purchased eight Dropbox (DBX) call-option contracts with a strike price of $30.50 at a cost of $3.75 per option.2 The option expires today when the value of DBX stock is $37.54. Ignoring transaction costs and noting that one contract is for 100 options, what is your total net profit (or loss) on your investment?

Answer 1

Option Cost = Cost per option x no. of stocks in a contract x no. of contracts = $3.75 x 100 x 8 = $3000

Now, on expiry, you will exercise the call option as the strike price is lower than the market price and buy the stock @strike price of $30.50 and then sell these shares on the market @$37.54.

Purchase value = $30.54 x 100 x 8 = $24,400

Sale value = $37.54 x 100 x 8 = $30,032

Net profit = Sale value - Purchase value - Option Cost = $30,032 - $24,400 - $3,000 = $2,632