Question

A customer sells short 100 shares of ABC at $35 and buys 1 ABC Jul 35 Call @ $3. The stock falls to $30 and the customer closes the option contract at $1 and buys the stock at the current market price. The customer has a:A. $200 lossB. $300 lossC. $200 gainD. $300 gain

Answer 1

Answer:

The answer is $300 gain.

Explanation:

Operations:

• Short 100 shares of ABC at $35 each= 100 * 35 = + $3,500
• Buy 1 ABC Jul 35 Call @ $3 (one call equals to 100 shares)= 100 * (3) = $(300), accumulated = + 3,500 - 300 = + 3,200
• Closes the option contract at $1 = 100 * 1 = + $100, accumulated = + 3,200 + 100 = + 3,300
• Buys the stock at the current market price (buys 100 stock @ $30 each)= 100 * (30) = $(3,000), accumulated = + 3,300 - 3,000 = + $300.