An investor purchased a call option that allows her to purchase 100 shares of Dell Computer common stock for $45 per share any time during the next six months.The price she paid for the option was $2.50 per share,or $250 total,and the current market price of Dell's stock is $42.50.If the price of Dell increases to $50 and the investor decides to exercise it,what will be the gain or loss that results from the option position that was held? Ignore taxes and commissions.
A) $500 gain
B) $250 loss
C) $750 gain
D) $250 gain
E) None of the above.

Question

Quizplus · Accepted Answer

If the price of Dell increases to $50 and the investor decides to exercise it, the gain will be $50 - $45 - $2.50 = $2.50 per share. Since the investor purchased 100 shares, the total gain will be $2.50 * 100 = $250.

An Investor Purchased a Call Option That Allows Her to Purchase