Question

Tesla stock is currently selling for $650 per share. Suppose you write 9 call option contracts with a $675 strike for a premium of $14. a) Are these contracts in the money or out of the money? b) What is the intrinsic value of these contracts? c) What is the time-value of these contracts? d) What is your gain or loss if at expiration the stock price is $670? e) What is your gain or loss if at expiration the stock price is $700?

Answer 1

Call option means an option to buy assets at an agreed price on or before a particular date. So in case of opt

A) It would amount to outflow of money as call option means to buy assets at an agreed price so it would amount to out of the money

B) Intrinsic value means the value which the investor is willing to pay for an investment at a given level of risk. In case of call option Intrinsic value would be difference between stock price and strike price. So in this case it the stock price is 650 and strike price is 675 so difference is -25 (negative) so in this case intrinsic value will be zero.

C) Time value = option premium - intrinsic value

So in this case it would be 14- (-15) so ans would be 14+15 = 29 dollar

D) in case the stock price is 670 dollar

Profit of 34 dollar

E) in case the stock price is 700 dollar

64 dollar profit