Question

1. You write one MBI July 120 call contract (equaling 100 shares) for a premium of $4. You hold the option until the expiration date, when MBI stock sells for $121 per share. You will realize a ______ on the investment.

Answer 1

Holding the option until the expiration date, when MBI stock sells for $121 per share. A loss of $300 will be realized on the investment.

What do you mean by Call Option?

A contract that exists between a buyer and seller of a call option to exchange securities held at a particular price within a specific period is called a Call Option.

To calculate the profit realized on the investment:

$\rm\,Profit \;from \; Call \; Option= (121- 120) \times 100\\\\Profit \;from \; Call \;Option= \ 100\\\\Profit \;from \;Premium= \ 4 \times 100\\\\Profit \;from \; Premium= \ 400\\\\Profit \;on \;Investment= Profit \;from \;Call \;Option - Profit \;from \; Premium\\\\Profit \;on \; Investment = \ 100 - \ 400 = (\ 300)$

Thus, A loss of $300 is realized on the investment.

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