Question

Suppose you believe that Bennett Environmental's stock price is going to increase from its current level of $ 36.47 sometime during the next 7 months. For $ 235.32 you could buy a 7-month call option giving you the right to buy 100 shares at a price of $ 27 per share. If you bought a 100-share contract for $ 235.32 and Bennett's stock price actually changed to $ 29.03 , your net profit (or loss) after exercising the option would be ______? Show your answer to the nearest .01. Do not use $ or , signs in your answer. Use a - sign if you lose money on the contract. Your Answer:

Answer 1

Premium paid =235.32

Call will be exercised if price on expiry is higher than strike price

Here strike price = 27 and price on expiry = 29.03

so call will be exercised.

Payoff = (price on expiry - strike price) x no of shares

Payoff = (29.03 - 27) x 100 = 203

Profit = Payoff - premium paid = 203 - 235.32 = -32.32

Answer : - 32.32