You purchased 3 call option contracts with a strike price of $35 and a premium of $1.20. At expiration, the stock was selling for $37.20 a share. What is your total profit or loss?
A) - $360
B) - $300
C) $300
D) $360
E) $420

Question

Quizplus · Accepted Answer

To calculate the profit or loss, we need to first determine the breakeven point.

Breakeven Point = Strike Price + Premium 
Breakeven Point = $35 + $1.20 
Breakeven Point = $36.20

Since the stock price at expiration ($37.20) is higher than the breakeven point ($36.20), the option is "in the money" and we can calculate the profit as follows:

Profit = (Stock Price - Strike Price) x Number of Contracts x 100 - Total Premium 
Profit = ($37.20 - $35) x 3 x 100 - ($1.20 x 3 x 100) 
Profit = $220

Therefore, the total profit is $220, which is equivalent to the premium collected ($1.20) multiplied by the number of shares per contract (100) and the number of contracts (3), plus the profit gained ($220) from the increase in stock price. The correct answer is C.

You Purchased 3 Call Option Contracts with a Strike Price