You purchased five call option contracts with a strike price of $22.50 and an option premium of $.48. You held the option until the expiration date. On the expiration date, the stock was selling for $21.70 a share. What is the total profit or loss on your option position?
A)−$45
B)$0
C)−$240
D)−$120
E)−$135

Question

Quizplus · Accepted Answer

Each call option represents 100 shares. Therefore, you purchased 500 shares (5 contracts x 100 shares per contract). Your total cost for purchasing the options is calculated as follows:

Option premium paid for 5 contracts = ($.48 x 100 shares x 5 contracts) = $240

The strike price of the option is $22.50, and the stock price on the expiration date is $21.70. Since the stock price is lower than the strike price, the option is out of the money and worthless. You lost the entire premium paid for the options, which is $240. Therefore, the total loss on the option position is $240 (answer choice C).

You Purchased Five Call Option Contracts with a Strike Price