Today’s stock price is 80, 90-dollar call, on the expiration day, stock price is 85. Price...

Today’s stock price is 80, 90-dollar call, on the expiration day, stock price is 85. Price of the call is 2. What is the value of the call on the expiration day? What is the next profit for the buyer? What is the net profit for the seller? Will the options be used?

Solutions

Expert Solution

Holder of a call option will have right to buy underlying asset at strike price on maturity date. For this He has to pay Premium amount to writer of call option.

On Maturity date, if the terms are faviorable to holder of call option, he will exercise else lapse the option.

As Strike Price(90)> Stock price (85)on the Maturity date, Holder of Call option will lapse the call.

Thus Value of Call is Zero on Maturity date.

Profit to buyer = Vc - Premium Paid

= 0 - 2

= -2

Profit to Seller = Premium Received - Vc

= 2 - 0

= 2

As Strike Price(90)> Stock price (85)on the Maturity date, Holder of Call option will lapse the call.

jeff jeffy answered 1 year ago

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