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

The net gain or loss on the investment can be calculated as follows:

Net gain or loss = (Option price * Number of contracts * 100) - ((Strike price - Stock price) * Number of contracts * 100)

= ($.40 * 10 * 100) - (($40 - $46.05) * 10 * 100)

= $400 - (-$605)

= $400 + $605

= $1,005

Since the stock price is higher than the strike price, the call option is in-the-money, and the investor would exercise the option. The net gain on the investment is $1,005, so the correct answer is B.

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