Question

In late September, a customer sells 5 XYZ calls for total premiums of $750. One month later, the investor closes this position when the contract is trading at 2. The result is

Answer 1

Answer:

Loss of $250

Explanation:

As provided the total premiums = $750

That is credit of $750

When closing is done at price of trading = 2

Each call = $200

Closing position of $200 per contract.

Since there are 5 calls, value = $200 $\times$ 5 = $1,000

Thus, there is a debit left of $1,000 - $750 = $250

This concludes that there is a loss of $250.