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8 October, 06:54

If the price is $4 for a call option with strike of $30, what are the payoff and profit on a long position, if the option expires when the stock is $38.5

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  1. 8 October, 07:00
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    Payoff = $8.5

    Profit = $4.5

    Explanation:

    from the question

    Stock price = $38.5

    strike price = $30

    premium per share (price paid for the option) = $4

    Call payoff per share on a long position, which is calculated as every $1 above the strike price

    = MAX (Stock price - strike price, 0)

    = (38.5 - 30)

    = $8.5

    Call profit on a long position

    = Payoff - Initial investment

    = (MAX (Stock price - strike price, 0) - premium per share)

    = (38.5 - 30) - 4

    = 8.5 - 4

    = $4.5
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