Question

You write one MBI July 139 call contract (equaling 100 shares) for a premium of $17. You hold the option until the expiration date, when MBI stock sells for $150 per share. You will realize a ______ on the investment.

Answer 1

Answer: $600 profit

Explanation:

Call contract = $139

Number of shares = 100

Selling price per share = $150

Premium = $17

(Call contract - selling price) × number of shares

($139 - $150) × 100 = -$1100

Total premium = $17 × 100 = 1700

PROFIT / LOSS ON investment = - $1100 + $1700

= $600

OR

Short call profit = Min [0, ($139 - $150)(100)] + $1700 = $600

$600 profit

Answer 2

Answer:

$600 loss

Explanation:

A call option is defined as a contract that exists between ba buyer and seller of a call option to exchange securities held at a particular price within a specific period.

To calculate the profit realised on the investment

Profit from call option= (150- 139) * 100

Profit from call option= $1,100

Profit from premium= 17 * 100

Profit from premium= $1,700

Profit on investment= Profit from call option - Profit from premium

Profit on investment = 1,100 - 1,700 = -$600

So there is a loss of $600