Bingo,Inc. ,enters into a call option contract with Racer Investment Co.on January 2,2014.This contract gives Bingo the option to purchase 1,000 shares of Saloon stock at $100 per share.The option expires on April 30,2014.Saloon shares are trading at $100 per share on January 2,2014,at which time Bingo pays $100 for the call option.Assume that the price per share of Saloon stock is $115 on April 30,2014,and that the time value of the option has not changed.In order to settle the option contract,Bingo,Inc. ,would most likely
A) pay Racer Investment $15,000.
B) purchase the shares of Saloon at $100 per share and sell the shares at $115 per share to Racer.
C) receive $15,000 from Racer Investment.
D) receive $400 from Racer Investment.

Question

Quizplus · Accepted Answer

Bingo, Inc. would exercise the call option to purchase the shares at $100 each and then sell them at the market price of $115, resulting in a profit of $15 per share. Since there are 1,000 shares, the total profit would be $15,000.

Bingo,Inc ,Enters into a Call Option Contract with Racer Investment