Question

Problem 2-18 Refer to Table 2.7 and look at the IBM options. Suppose you buy a July 2016 expiration call option with exercise price $150. a-1. Suppose the stock price in July is $153.70. Will you exercise your call? • Yes No a-2. What is the profit (loss) on your position? (Enter your answer as a positive value rounded to 2 decimal places.)

Answer 1

For July 150 call,

Strike Price = X = $150

Stock Price = S = $153.70

Call Premium = P = $3.31

Profit = S - X - P = 153.70 - 150 - 3.31 = $0.39

Since the Profit > 0, Yes we will exercise the call option

Profit = $0.39