Question

You write one IBM July 120 call contract for a premium of $10. You hold the option until the expiration date when IBM stock is at $123 per share. How much profit or loss you will realize on the investment

Answer 1

The answer is loss of $7

Step-by-step explanation:

For the buyer of call profit (long) =

Max[0,(St -Sx)] - P

where St is the underlying price of the security

Sx is the excercise price

P is the premium price paid

Max [0, ($123 - $120)] - $10 =

$3 - $10

Loss of $7