Question

You purchase 17 call option contracts with a strike price of $95 and a premium of $3.75. Assume the stock price at expiration is $102.46 a. What is your dollar profit? (Do not round intermediate calculations.) Dollar profit 63 b. What is your dollar profit if the stock price is $88.41? (A negative value should be indicated by a minus sign. Do not round intermediate calculations.) If the stock price is $88.41, the call is worthless so the dollar profit is S

Answer 1

a. The dollar profit is computed as shown below:

= Number of contracts x ( Stock price at expiration - strike price - premium )

= 17 x ( $ 102.46 - $ 95 - $ 3.75 )

= $ 63.07

b. The dollar profit is computed as follows:

= Number of contracts x ( Stock price at expiration - strike price - premium )

= 17 x ( $ 88.41 - $ 95 - $ 3.75 )

= - $ 175.78

But as we know, in case of a call option, the maximum loss that can be suffered by the person who has bought the call option is restricted to the option premium amount

So the loss will be:

= 17 option contracts x $ 3.75

= - $ 63.75

Feel free to ask in case of any query relating to this question