You purchase 12 call option contracts with a strike price of $50 and a premium o

Question

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.)

, so the dollar return is $ .

What is your dollar profit? (Do not round intermediate calculations. Omit the "$" sign in your response.)

Explanation / Answer

1) Purchased call option contracts i.e. right to buy No of call option contracts                          12.00 Strke price                            50.00 Total price at which shares can be bought(12*50)                       600.00 Total Premium(12*3.80)                          45.60 Total Purchase cost(Strike price +premium)                       645.60 Sale price(12*59.12)                       709.44 Profit = Sale Price - Purchase price                          63.84 2) If stock price is 45.07 then we would not have exercised our option since we would have purchased from market itself Dollar Return = Loss of premium paid = -$45.60

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