Theresa sold ten call option contracts with a strike price of $25 when the option was quoted at $.55 per share. The options expire today when the value of the underlying stock is $24.10. Ignoring trading costs and taxes, what is the net profit on this investment?

Question

Quizplus · Accepted Answer

Theresa sold call options, meaning she received a premium for them. Each contract represents 100 shares, and she sold them at $.55 per share. Therefore, she received 10 * 100 * $.55 = $550. Since the stock price at expiration ($24.10) is below the strike price ($25), the options are out of the money and will not be exercised. Thus, Theresa keeps the entire premium as her profit, which is $550.

Theresa Sold Ten Call Option Contracts with a Strike Price