You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires t

Question

3 years ago

12

You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires t

oday when the value of TJH stock is $41.90. Ignoring trading costs and taxes, what is your total profit or loss on your investm

Business

1 answer:

jek_recluse [69] · Answer 1 · 2021-12-31T10:46:29+03:00

Answer:

Profit = $0.60

Explanation:

Call option is an option to buy by paying a call premium. The option is exercised when current market price is more than the strike price. In this case, the strike price is $40 and the premium is $1.30, whereas the current market price is $41.90. The option buyer can exercise the contract by purchase the stock at lower price and sell at current market price to gain return. The gain will be calculated as:

Value = Current Price - Strike Price

Value = 41.90 - 40

Value = 1.90

To calculate the profit, we needs to subtract premium cost from value:

Profit = Value - Call Premium

Profit = 1.90 - 1.30

Profit = $0.60