What is the value of five September $40 call contracts on PTL stock if the option premium quote is $1.35 a share and the stock is selling for $41.30 a share?

Question

Quizplus · Accepted Answer

Each call contract gives the holder the right to purchase 100 shares at the strike price of $40. Therefore, the total cost of exercising all five contracts would be 5 x 100 x $40 = $20,000. However, since the share price is currently at $41.30, the option would be considered "in the money" and worth at least the difference between the two prices. The difference is $1.30 ($41.30 - $40), but since each contract represents 100 shares, the profit per contract is $130. Therefore, the total profit for all five contracts is 5 x 100 x $1.30 = $650. This is the value of the contracts. The option premium quote of $1.35 per share is irrelevant to this calculation. Thus, the best choice is E.

What Is the Value of Five September $40 Call Contracts