At expiry, a holder of a call option (with an exercise price of $18.50, purchased for a premium of $1.05)over JB Hi-Fi shares will exercise if the share-price is $19.76.

Question

Quizplus · Accepted Answer

Since the current share price ($19.76) is higher than the exercise price ($18.50), the holder of the call option would exercise it to buy the shares at the lower price and then sell them at the higher market price, thus earning a profit. The premium paid for the option is already factored into the calculation of profit.

At Expiry, a Holder of a Call Option (With an Exercise