You write 15 call option contracts at price of $2.64 and a strike price of $55. If the stock price at expiration is $61.12, what is your profit?
A) -$5,220
B) -$3,960
C) $6,320
D) $3,960
E) -$9,180

Question

Quizplus · Accepted Answer

The profit (or loss) from writing call options can be calculated by considering the premium received and the difference between the stock price at expiration and the strike price, if the stock price is above the strike price. Here, since the stock price at expiration ($61.12) is above the strike price ($55), the options will be exercised. The loss per option is the difference between the stock price at expiration and the strike price, minus the premium received. This is ($61.12 - $55 - $2.64) * 100 = $5.48 * 100 = $548 per contract. Since there are 15 contracts, the total loss is $548 * 15 = $8,220. However, the premium received initially was $2.64 * 100 * 15 = $3960. The net loss is $8,220 - $3,960 = $4,260, but since this option is not listed, the calculation should be revisited.Correcting the calculation: The initial calculation mistake was in not directly applying the loss correctly. For each contract, the loss due to the stock's increase in price beyond the strike price is ($61.12 - $55) * 100 = $6.12 * 100 = $612 per contract. Since 15 contracts were written, the total loss from the stock price increase is $612 * 15 = $9,180. However, the initial calculation of the premium received was correct: $2.64 * 100 * 15 = $3,960. Therefore, the net loss is the total loss from the stock price increase minus the premium received: $9,180 - $3,960 = $5,220. This corrects the initial explanation and aligns with the correct choice based on the provided options.

You Write 15 Call Option Contracts at Price of $2