Grant purchased one call on XYZ stock at an exercise price of $25. The market price of XYZ stock when Grant purchased the call was $24 a share. XYZ is currently priced at $30 a share. Grant paid $120 to buy the call. How much profit will Grant make if he exercises the option today and then sells the shares? Ignore all transaction-related costs.
A) $380
B) $480
C) $500
D) $600

Question

Quizplus · Accepted Answer

Grant's profit is calculated by taking the difference between the current market price ($30) and the exercise price ($25), which equals $5 per share. Since options typically control 100 shares, this results in a gross profit of $500. After subtracting the cost of the call ($120), the net profit is $380.

Grant Purchased One Call on XYZ Stock at an Exercise