Question

Assume you just bought 100 call contracts on shares of Company A. The options can be exercised in one year’s time at the strike price of $30. You paid $0.50 per option. The shares of the company are currently selling at $24 per share. If the company's share price rises to $32 in one year’s time, what will be your net gain from the call options?

Answer 1

An investor bought 100 Call contract and the size of the contract is 100 shares.

Price paid per option contract = $0.50

Strike price = $30

Share price rises in one year = $32

To determine net gain from the call options is as follows,

Gross profit per contract = Share price rises in one year - Strike price

Gross profit per contract = $32 - $30 = $2

Net profit per contract = Gross profit per contract - Price paid per option contract

Net profit per contract = $2 - $0.5 = $1.50

Net gain form the call option = Call contract x Contract size x Net profit per contract

Therefore net gain form the call option = 100 x 100 x 1.50 = $15,000