Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50 and write one Texas Instruments August 80 call contract quoted at $6.If,at expiration,the price of a share of Texas Instruments stock is $79,your profit would be _________.
A) $150
B) $400
C) $600
D) $1,850

Question

Quizplus · Accepted Answer

The profit is calculated by considering the premiums paid and received, and the intrinsic value at expiration. You paid $850 for the 75 call and received $600 for the 80 call, resulting in a net cost of $250. At expiration, the 75 call is worth $400 (since the stock price is $79, the intrinsic value is $79 - $75 = $4 per share, and each contract is for 100 shares), and the 80 call expires worthless. Thus, your profit is $400 - $250 = $150.

Suppose You Purchase One Texas Instruments August 75 Call Contract