You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?
A) -$6,450
B) -$5,650
C) $400
D) $5,650
E) $6,450

Question

Quizplus · Accepted Answer

Since the option has a strike price of $40, and the stock is trading at $46.05, the option is in-the-money by $6.05 ($46.05 - $40). This means that each option contract has an intrinsic value of $6.05 per share, or $605 per contract (since each contract represents 100 shares). However, the option price was $.40 per contract, or $40 total for all 10 contracts. So the net gain is ($6.05 - $.40) * 100 shares * 10 contracts = $5,650.

You Wrote Ten Call Option Contracts on JIG Stock with a Strike