Question

You purchase one IBM July 120 call contract for a premium of $5. You hold the option until the expiration date when IBM stock sells for $127 per share. You will realize a ______ on the investment.

Answer 1

realize on the investment loss $2

if we cover 100 share than realize = $200 loss

Step-by-step explanation:

given data

purchase = 120

premium = $5

sell = $127 per share

to find out

realize on the investment

solution

first we will get here Market price on expiration date that is

Market price = purchase + premium ...........1

Market price = 120 + 5

Market price = $125

so we get here loss that is

loss = Market price - sell .........2

loss = $125 - $127

loss = $2

and if we consider for Recall that each put covers 100 shares

than we realize on the investment is = 2 × 100 = $200 loss