29. (a). You purchased eight WAN call option contracts with a strike price of $2

Question

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

a) Per option you make a profit of $ 0.7 since it is in the money by that much. Net of option cost, your profit per option is $0.1. For eight options you will make a profit of $ 0.8.

b) Since the option is out of money, the call will not be exercised. Hence you make a profit equal to the selling price of the options, that is $1.1.

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.