Question

FOTO Styles AaBbCcDdE AaBbCcDdE AaBbCCD AaBbc Normal No Spacing Heading 1 Headi 1 .2 .3 .4 . 51 6 1 4. (5 pts) What do we call the cost of buying the option? A. The strike price B. The call price C. The put price D. The option premium 5. (5 pts) Option contracts are for how many shares of the underlying stock? A. One B. Ten C. One hundred D. It depends on the strike price 6. (10 pts) I buy one CALL option on AMD with a strike price of $20.50. The option premium is $11.00. Suppose the price of AMD is $35.00 a share and I choose to exercise the option. What are my total gains or losses?

Answer 1

4. D. The option premium

The cost of buying an option is called option premium.

5. C. One Hundred

Generally, an option contract contains right to buy or sell of one hundred shares of the underlying stock.

6.

Gain or loss on call option can be computed with following equation:

$\textup{Gain/Loss on call } = \textup{Max(Share price on expiry - Strike price,0)-call premium}$

$\textup{Gain/Loss on call } = \textup{Max(35.00 - 20.50,0)-11.00}$

$\textup{Gain/Loss on call } = \textup{14.5-11.00}$

$\bg_green \large \textup{Gain/Loss on call } = \$3.5$

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.