A trader purchases 10 BHP call options,each contract being for 1,000 BHP Billiton shares,at a strike price of $32.20.The trader then closes out the position when the market price for BHP Billiton shares is $32.50.What has been the change in the trader's wealth position?
A)The trader made a loss of $300 ignoring transaction costs.
B)The trader made a profit of $300 ignoring transaction costs.
C)The trader made a loss of $3,000 ignoring transaction costs.
D)The trader made a profit of $3,000 ignoring transaction costs.

Question

Quizplus · Accepted Answer

The trader made a profit of $3,000 ignoring transaction costs. The profit per share is $0.30 ($32.50 - $32.20), and since each contract is for 1,000 shares and there are 10 contracts, the total profit is 10 * 1,000 * $0.30 = $3,000.

A Trader Purchases 10 BHP Call Options,each Contract Being for 1,000