A call option with a strike of K = 100 is purchased at a premium of $4. The stock price at maturity is $105. The net payoff of the option is

Question

Quizplus · Accepted Answer

The net payoff of the option is calculated by subtracting the premium paid for the option from the gross payoff. The gross payoff from the call option is the difference between the stock price at maturity ($105) and the strike price ($100), which is $5. After subtracting the premium paid ($4), the net payoff is $1.

A Call Option with a Strike of K = 100