You purchased eight TJH call option contracts with a strike price of $37.50 when the option quote was $.55.The option expires today when the value of TJH stock is $37.10.Ignoring trading costs and taxes,what is your total profit on your investment?

Question

Quizplus · Accepted Answer

Each contract represents 100 shares, so you have the right to buy 800 shares of TJH at $37.50 per share. However, since the stock is currently trading at $37.10, it is not advantageous to exercise the option. The option is therefore out of the money, meaning it has no intrinsic value. The cost of purchasing the eight contracts was: 8 x 100 x $.55 = $440. Since the option is worthless at expiration, the total profit is equal to the initial cost of the options: −$440. Therefore, the correct answer is C.

You Purchased Eight TJH Call Option Contracts with a Strike