Problem 3-7 You purchase 12 call option contracts with a strike price of $50 and
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Question
Problem 3-7
You purchase 12 call option contracts with a strike price of $50 and a premium of $3.80. Assume the stock price at expiration is $59.12.
What is your dollar profit? (Do not round intermediate calculations. Omit the "$" sign in your response.)
What if the stock price is $45.07? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Omit the "$" sign in your response.)
References
You purchase 12 call option contracts with a strike price of $50 and a premium of $3.80. Assume the stock price at expiration is $59.12.
Explanation / Answer
(1) Cost of each call option with strike $50 = $3.80
Stock price on expiry = $59.12
Value of call option on expiry = $59.12-$50 = $9.12
Cost paid for each contrct = $3.80
Total dollar profit on each contract = $9.12 - $3.80 = $5.32
Number of contracts purchased = 12
TOtal Dollar Profit = 12 * $5.32 = $63.84
(2) If stock price on expiry is $45.07, the call will expire worthless
Total Loss on each contract = Premium Paid = $3.80
Total Dollar Loss = 12 * $3.80 = - $45.6
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