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Rosa purchased three call option contracts on ABC stock with a strike price of $27 when the option premium was quoted at $1.1. The option expires today when ABC stock price is $29 at the market. She pays $10 as trading costs in total. What is the net profit on this investment?

Respuesta :

Answer:

Explanation:

Profit on a long call option = max(St - X, 0) - premium paid  

Profit on a long call option = max(29 - 27, 0) - 1.1

Profit on a long call option = max(2, 0) - 1.1

Profit on a long call option = 2 - 1.1

Profit on a long call option = 0.9 per share

Total profit on the long call option = 0.9 * 100 shares per contract * 3 contracts  = 0.9 * 100 * 3  = $270

Net profit on this investment = 270 - 10

Net profit on this investment = $260

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