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Question 12 O out of 10 points A call option on a stock, with time to maturity of 2 months and strike price of $25.67, is currently trading at a premium of X $1.78 per share. If you buy options on 20,000 shares (200 contracts), and then at maturity the stock is trading at $22.76, what is your net profit from this position? Selected Answer: 22,600 -35,600.00 + 1% Correct Answer: Response Feedback: Remember that a call option gives you the right, but not the obligation, to buy the underlying asset at the strike price.

Answer 1

The net profit from this position is computed as shown below:

= Maturity value of the stock - Strike Price - Premium

But in case of buying call option the maximum loss that can be suffered is restricted to the premium amount paid.

So the profit will be:

= $ 22.76 - $ 25.67 - $ 1.78

= - $ 4.69

But as said above the loss is restricted to the premium amount only, hence the profit will be:

= $ 1.78 x 20,000

= - $ 35,600

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