You sold (wrote) five TWX call option contracts with a strike price of $40 when the option was quoted at $3.20. The option expires today when the value of TWX stock is $38.15. Ignoring trading costs and taxes, what is the total profit or loss on your investment?
A) -$1,600
B) -$675
C) $0
D) $500
E) $1,600

Question

Quizplus · Accepted Answer

Since the stock price at expiration ($38.15) is below the strike price ($40), the options will expire worthless. This means the writer of the call options keeps the premium received. The total profit is the premium received for the options, which is $3.20 per option x 100 shares per contract x 5 contracts = $1,600.

You Sold (Wrote) Five TWX Call Option Contracts with a Strike