You sell an IBM call option for $4.The strike price of the option is $120,and the maturity is one year.At maturity,the price of the IBM stock is $126.Your profit/loss over the entire transaction is:

Question

Quizplus · Accepted Answer

When you sell a call option and the stock price at maturity ($126) is above the strike price ($120), the option will be exercised. You sold the option for $4, but you have to sell the stock at $120 when the market price is $126, resulting in a $6 loss on the stock. However, since you received $4 for selling the option, your net loss is $2 ($6 loss on the stock minus the $4 received for the option).

You Sell an IBM Call Option for $4