Suppose Superior Textiles Ltd has negotiated a call option contract on 50,000 kg of wool at an exercise price of $12.00/kg.The seller of this call option charges a premium of $1.20/kg,so the total premium is $60,000.Under the terms of the agreement,Superior Textiles is only able to buy the wool from the option writer on the expiry date,which is in three months time.Would the option be exercised in three months time if the price of wool is $14.00/kg? What would be the gain/loss arising from using the call option?

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The Answer of Suppose Superior Textiles Ltd has negotiated a call option contract on 50,000 kg of wool at an exercise price of $12.00/kg.The seller of this call option charges a premium of $1.20/kg,so the total premium is $60,000.Under the terms of the agreement,Superior Textiles is only able to buy the wool from the option writer on the expiry date,which is in three months time.Would the option be exercised in three months time if the price of wool is $14.00/kg? What would be the gain/loss arising from using the call option?

Suppose Superior Textiles Ltd Has Negotiated a Call Option Contract