Question

You write one MBI July 127 call contract (equaling 100 shares) for a premium of $12. You hold the option until the expiration date, when MBI stock sells for $135 per share. You will realize a ______ on the investment.

Answer 1

Answer:

The answer is "$400"

Explanation:

The price value of the exercise:

= $127

The expiration date price value is:

= $135

Calculating the profit for Calls buyer:  

= $135-$127  

= $8

The value of 1 call = 100 shares  

calculating the total profit :

=$ 8 × 100  

= $ 800

One alternative purchase price:

= $12

Call option Total purchase price:

=  $12 × 100  

= $1200

The buyer's total loss:

= $1200 - $800

= $400

The Loss for the buyer:  $\frac{\text{profit for the seller}}{\text{writer}}$

Hence profit for the writer = $400