Question

You purchase one IBM July 125 call contract for a premium of $5. You hold the option until the expiration date when IBM stock sells for $123 per share. You will realize a ______ on the investment. Each contract is for 100 shares of stock

Answer 1

Answer:

Loss of $500

Explanation:

Given that

Stock price = 123

Strike price = 125

Premium price = 5

Recall that

Long call profit = (MAX (stock price - strike price, 0) - premium per share

Thus,

Long call profit = Max [0, ($123 - $125)(100)] - $500

= - $500.

Therefore, the negative sign in front indicates a loss of $500