You sold one call option contract with a strike price of $42.50 when the option was quoted at $1.10. The option expires today when the value of the underlying stock is $38.10. Ignoring trading costs and taxes, what is your net profit or loss on your investment?

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Quizplus · Accepted Answer

Since the value of the underlying stock ($38.10) is below the strike price ($42.50) at expiration, the call option will expire worthless. This means you get to keep the premium you received when you sold the option, which is $1.10 per share. Options contracts typically represent 100 shares, so your total profit is $1.10 * 100 = $110.

You Sold One Call Option Contract with a Strike Price