Nov 35 83 29. (a). You purchased eight WAN call option contracts with a strike p

Question

Nov 35 83 29. (a). You purchased eight WAN call option contracts with a strike price of $27.50 when the option was quoted at $0.60. The option expires today when the value of WAN stock is $28.20. Ignoring trading costs and taxes, what is your net profit or loss on your investment? (b) You wrote (i.e, sold) one call option contract with a strike price of $42.50 when the option was quoted at $1.10. The option expires today when the value of the underlying stock is $38.10 Ignoring trading costs and taxes, what is your net profit or loss on your investment

Explanation / Answer

29. Net profit= 0.10

since stock price 28.2 is higher than exercise price of 27.5 option will be exercised and payoff will be= 28.2-27.5= 0.7

option premium paid= 0.6

net profit= 0.7-0.6= 0.10

30. Net profit= 1.10

since the stock price 38.1 is lessthan the strike price 42.5 the option buyer will not exercise the option, hence for the writer profit will be the amount of option premium received= 1.10

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