A call option on Illinois stock specifies an exercise price of $38. Today’s pric

Question

A call option on Illinois stock specifies an exercise price of $38. Today’s price of the stock is $40. The premium on the call option is $5. Assume the option will not be exercised until maturity, if at all. Complete the following table:

              Assumed Stock Price at the Time    Net Profit or Loss per Share to Be Earned

            the Call Option Is About to Expire     by the Writer (Seller) of the Call Option          

                                       $37                                                                

                                       $38                                                                

                                       $40                                                                

                                       $42                                                                

                                       $45                                                                

                                       $48

Explanation / Answer

Answer:

Assumed Stock Price at the Time the Call Option Is About to Expire Net Profit or Loss per Share to Be Earned by the Writer (Seller) of the Call Option Explanation $37 $5 38+5-38 $38 $5 38+5-38 $40 $3 38+5-40 $42 $1 38+5-42 $45 ($2) 38+5-45 $48 ($5) 38+5-48

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