Question

Assume you just bought 100 call contracts on shares of Company A. The options can be...

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?

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

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