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At expiry, a holder of a call option with an exercise price of $32 (purchased for...

At expiry, a holder of a call option with an exercise price of $32 (purchased for a premium of $0.85) over Wesfarmers shares (now trading at $33.65) will:

Select one:

not exercise with a loss of $1.65 per share

exercise with a profit of $1.65 per share

exercise with a profit of $0.80 per share

not exercise with a loss of $0.85 per share

exercise with a profit of $0.85 per share

Solutions

Expert Solution

It is a case of call option

If price on expiry is greater than strike price, call will be exercised.

Here,

Strike price =32

Premium paid =0.85

Now price on expiry = 33.65

Which is higher than strike price, so call will be exercised.

Payoff = price on expiry- strike price

Payoff = 33.65 - 32 = 1.65

Profit = Profit - premium paid = 1.65 -0.85 =0.80

Answer : exercise with a profit of 0.80 per share. [Thumbs up please]

jeff jeffy answered 1 year ago
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