Question

if an investor with no other positions buys 2 dwq jun 45 calls at 3, and he exercises the calls when the stock is trading at 47.25 and immediately sells the stock in the market, what is the investor's profit or loss?

Answer 1

The investors loss is $150. (Option D) See the explanation for same below.

What is the explanation for the above answer?

It it to be noted that the investor exercised the right to acquire the stock for 45 and may sell it on the market for 47.25, resulting in a 2.25 gain.

The investor loses of $0.75 per share when the gain of $2.25 is subtracted from the premium of 3.

When the $0.75 loss is multiplied by 200 (the number of shares transacted), the result is a loss of $150.

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Full Question:

If an investor with no other positions buys 2 DWQ Jun 45 calls at 3, and he exercises the calls when the stock is trading at 47.25 and immediately sells the stock in the market, what is the investor's profit or loss?

A) $75 profit.

B) $75 loss.

C) $150 profit.

D) $150 loss.