You bought a call option with a strike price of $40. What is your total payoff on this option contract if the underlying stock is selling for $42.70 on the option expiration date?
A)$3
B)$70
C)$133
D)$233
E)$270

Question

Quizplus · Accepted Answer

The total payoff from a call option is calculated by subtracting the strike price from the stock's price at expiration, if the stock's price is above the strike price. Here, the stock's price at expiration is $42.70 and the strike price is $40. Therefore, the payoff is $42.70 - $40 = $2.70. However, since options typically represent 100 shares, the total payoff is $2.70 * 100 = $270.

You Bought a Call Option with a Strike Price of $40