Question

You bought a call option for $30. The strike price of the option is 200 dollars.With a share price of $250, how much will you win/loss? explain.

Answer 1

A long call option is an option which provides us the right to buy and for this we need to pay a premium . It is exercised when the stock price is more than strike price. If the stock price is not more than strike price then the option is not exercised and the maximum you lose is the premium paid to buy the option.

In this case, the stock price is more than strike price. So the Option will be exercised.

The total profit earned is $20.

Profit = Max (0, stock price - strike price) - premium

= Max (0, 250 - 200) - 30

= Max (0, 50) - 30

= 50 - 30

= $ 20