Question

You purchase one XLF (SPDR Financials ETF) July 35 call option for a premium of $5. You hold the option until the expiration date when XLF sells for $33 per share. You will realize a ______ on the investment.

a. $7 loss
b. $2 loss
c. $5 loss
d. $2 profit

Answer 1

To calculate the profit on the investment, consider the cost of the option premium and the value of the stock at the expiration date. The investor will realize a loss equal to the premium paid, which is $5. Therefore, the correct option is C.

Step-by-step explanation:

To calculate the profit on the investment, we need to consider the cost of the option premium and the value of the stock at the expiration date.

The cost of the option premium is $5.

Since the stock price at the expiration date is $33 and the strike price of the call option is $35, the option is out of the money and has no intrinsic value. Therefore, the option is worthless.

As a result, the investor will realize a loss equal to the premium paid, which is $5. So the answer is option c. $5 loss.