Rosa purchased three call option contracts on ABC stock with a strike price of $27.50 when the option was quoted at $1.10 per share. The option expires today when the value of ABC stock is $29.30. Ignoring trading costs and taxes, what is the net profit on this investment?

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Quizplus · Accepted Answer

Each contract typically represents 100 shares, so Rosa bought 3 contracts covering 300 shares in total. The difference between the stock's value at expiration ($29.30) and the strike price ($27.50) is $1.80 per share. This results in a gross profit of $1.80 * 300 = $540. However, Rosa paid $1.10 per share as the option premium, totaling $1.10 * 300 = $330. Subtracting the cost of the premium from the gross profit ($540 - $330), Rosa's net profit is $210.

Rosa Purchased Three Call Option Contracts on ABC Stock with a Strike