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gulaghasi [49]
3 years ago
8

If the price is $4 for a call option with strike of $30, what are the payoff and profit on a long position, if the option expire

s when the stock is $38.5
Business
1 answer:
Setler [38]3 years ago
3 0

Answer:

Payoff = $8.5

Profit = $4.5

Explanation:

<u>from the question</u>

Stock price = $38.5

strike price = $30

premium per share (price paid for the option) = $4

Call payoff per share on a long position, which is calculated as every $1 above the strike price

= MAX (Stock price - strike price, 0)

= (38.5 - 30)

= $8.5

Call profit on a long position

= Payoff - Initial investment

= (MAX (Stock price - strike price, 0) - premium per share)

= (38.5 - 30) - 4

= 8.5 - 4

= $4.5

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