Question

chloe invested $500 by purchasing 50 call options for xyz stock at $85 per share. at its highest point, the stock reached 97 per share. if chloe had exercised her option at that time, what would her return have been?

Answer 1

Chloe's return on her investment would have been $424,500.

Step-by-step explanation:

To calculate Chloe's return on her investment, we need to determine the value of her call options at the highest point of the stock. Each call option allows Chloe to buy 100 shares of the stock at the strike price of $85 per share.

Since Chloe purchased 50 call options, she has the right to buy a total of 50 * 100 = 5000 shares.

If the stock reached $97 per share, Chloe would exercise her options and buy the shares at $85 per share.

Her total cost would be 5000 * 85 = $425,000.

To calculate Chloe's return, we subtract her initial investment of $500 from her total cost of purchasing the shares. Her return would be $425,000 - $500 = $424,500.