Question

The recent price per share of Company X is $102 per share. You buy 100 shares at $50. Meanwhile, you sell 100 shares of calls with a strike price of $102. The call premium is $1 per share. If Company X closes at $82 per share at the expiration of the call, and you sells all the 100 shares at $82. What would be the total profit and loss from investing in the stock and investing in the option?

Answer 1

Number of shares purchased at $50 = 100

Total Purchase Price = 100*50 = $5000

Shares are sold at $82

Hence, Selling Price = 100*82 = $8200

=> Profit from shares = Selling Price - Purchase Price = $8200 - 5000 = $3200

Strike Price = X = $102

Call Premium = P = 1

Since the stock price is lower than Strike Price, the seller makes a profit of $1 per share

Total Profit from options = Number of options sold * Premium received = 100*1 = $100

Total Profit = Profit from shares + Profit from options = 3200 + 100 = $3300