Question

Tesla Inc. is traded at $480.01 per share when Nancy sold a call option today. The call premium is $86 and the exercise price is $500. The option will be expired on August 21, 2020.

1. What are Nancy’s maximum profit and maximum loss?
2. Show the profit/loss if, at the expiration date, the Tesla price is (1) $400, (2) $530, (3) $700 ?

Answer 1

	Call option means the holder of the option has the right to buy the stock not an obligation to buy
	Either he can exercise the option or he can loos
	The maximum loss he may incure is his premium amouont that is ; $86
	Maximum profit may exceed the premium amount
B)	Exercise price is $500
	Premium is $86
	He will exercise the option when the stock price exceed the exercise price and vice versa
		1	2	3	4	5	6
		Expiration Date Tesla price	Exercise price	Exercise the option or not	Profit or loss(1-2)	Premium	Total profit or Loss(4-5)
		$       400.00	$ 500.00	No	nil	$    85.00	$ (85.00)
		$       530.00	$ 500.00	Yes	30	$    85.00	$ (55.00)
		$       700.00	$ 500.00	Yes	200	$    85.00	$ 115.00