you have purchased a call option on johnson & johnson common stock. the option h

Q: you have purchased a call option on johnson & johnson common stock. the option h

a) net profit is 62.50 - 57.50 - 2.17 = $2.83 b) net profit is 58 - 57.5 - 2.17 = -1.67, hence a loss of 1.67 c) If it falls to 58 and you dont exercise the option the loss is 2.17 and on exercising its 1.67 and hence its more profitable to exercise the option.

ID: 2698169 • Letter: Y

Question

you have purchased a call option on johnson & johnson common stock. the option has an exercise price of $57.50 and J&J's stock currently trades at $58.93. the option premium is $2.17 per contract.

a. Calculate you net profit on the option is J & J's stock price rises to $62.50 and you exercise the option.

b. Calculate your net profit on the option if J & J's stock price falls to $58.00 and you exercise the option.

c. If J & J's stock price falls to $58.00 show that it is more profitable to exercise than not exercise the option you have purchased.

Explanation / Answer

a) net profit is 62.50 - 57.50 - 2.17 = $2.83

b) net profit is 58 - 57.5 - 2.17 = -1.67, hence a loss of 1.67

c) If it falls to 58 and you dont exercise the option the loss is 2.17 and on exercising its 1.67 and hence its more profitable to exercise the option.

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you have purchased a call option on johnson & johnson common stock. the option h

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