Which of the lines is a graph of the profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125?
A)A
B)B
C)C

Question

Which of the lines is a graph of the profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125? 
A)A 
B)B 
C)C

Quizplus · Accepted Answer

The profit at maturity of writing a call option on €62,500 with a strike price of $1.20 = €1.00 and an option premium of $3,125 will be maximum (i.e., €3,125) if the price of Euro remains below the strike price of $1.20 = €1.00 till the maturity date. This scenario is represented by the flat line in the graph which intersects the x-axis at €1.20. Option A, C, and D represent the profit at maturity of buying a call option, not writing a call option. Hence, the answer is B.

Which of the Lines Is a Graph of the Profit