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You wrote eight call option contracts with a strike price of $42.50 at a call price of $1.35 per share. What is your net gain or loss on this investment if the price of the underlying stock is $40.30 per share on the option expiration date?

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thaovtp1407

Answer:

She will loss $10.8

Explanation:

Given:

  • Strike price of $42.50
  • Premium $1.35 per share

We need to understand a call option is a financial contract that give the option buyer the right, but not the obligation, to buy a stock

In the  question the underlying stock is $40.30 and it is smaller than the strike price $42.50. So she will not exercise the call option to buy the stock with the price of $40.30. And she will loose the premium $1.35 per share =

8* $1.35  = $10.8

If she exercise the call option she will lost:

The premium and the exchange rate difference amount

= 8* $1.35  + 8*($42.50 - $40.30)

=  $10.8 + $17.6

= $28.4

So she will not excerise the call option.

Hope it will find you well.

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