You purchased six TJH call option contracts with a strike price of $40 when the option was quoted at $1.30. The option expires today when the value of TJH stock is $41.90. Ignoring trading costs and taxes,what is your total profit or loss on your investment?
A) $60
B) $320
C) $360
D) $420
E) $540

Question

Quizplus · Accepted Answer

To calculate the profit or loss, we need to first calculate the breakeven price:
Breakeven price = Strike price + Premium paid
= $40 + $1.30
= $41.30

Since the current stock price is higher than the breakeven price, the option is in the money. Therefore, the profit is calculated as:
Profit = (Current stock price - Breakeven price) x Number of contracts x Contract size
= ($41.90 - $41.30) x 6 x 100
= $360

Therefore, the total profit is $360. The correct answer is C).

You Purchased Six TJH Call Option Contracts with a Strike