Asked by Ogheneruno Siakpebru on Jun 30, 2024
Verified
You sold one call option contract with a strike price of $42.50 when the option was quoted at $1.10. The option expires today when the value of the underlying stock is $38.10. Ignoring trading costs and taxes, what is your net profit or loss on your investment?
A) -$550
B) -$110
C) $0
D) $110
E) $550
Strike Price
The specified price at which the buyer of an option can buy (for a call option) or sell (for a put option) the underlying asset.
Net Profit
The amount of income that remains after all operating expenses, taxes, and costs have been subtracted from total revenue.
- Assess the ultimate financial gain or shortfall from various investments in options.
Verified Answer
ZK
Zybrea KnightJul 07, 2024
Final Answer :
D
Explanation :
Since the value of the underlying stock ($38.10) is below the strike price ($42.50) at expiration, the call option will expire worthless. This means you get to keep the premium you received when you sold the option, which is $1.10 per share. Options contracts typically represent 100 shares, so your total profit is $1.10 * 100 = $110.
Learning Objectives
- Assess the ultimate financial gain or shortfall from various investments in options.