The price of a stock in January 2021 is $57

Finance Jan 22, 2021

The price of a stock in January 2021 is $57. A trader buys 100 call options on the stock with a strike price of $60 when the option price is $2. The options are exercised when the stock price is $65. The trader's net profit is Select one: O a. None of these O b. $500 O c. $300 O d. $400 O e. $600

Expert Solution

Call option entitles the buyer to enjoy the upside in the stock price from the strike price.

Excercise day pay off received = 100 options * ($65 - $60) = $ 500

Less: option premium paid = $ 2 * 100 = $ 200

Net Profit = $ 500 - $ 200 = $ 300

hence, option c. $ 300 is the correct answer.

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