Final answer:
The investor who buys 1 DWQ May 75 call at 6.50 and exercises it when the stock price is at $77, then immediately sells the stock, incurs a loss of $450. This loss is calculated by accounting for the cost of the call option and the price paid when exercising the option and then subtracting from the proceeds of the stock sale.
Step-by-step explanation:
The question concerns an investor who buys a call option and wants to calculate the profit or loss from exercising the option and immediately selling the stock. The call option allows the investor to buy the stock at a strike price of $75 when the market price is $77. Here is the breakdown of the calculation:
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- Cost of buying the call option: 1 x $6.50 = $650
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- Cost of buying the stock upon exercising the option: 1 x $75 = $7,500
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- Total investment: $650 + $7,500 = $8,150
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- Selling the stock at market price: 1 x $77 = $7,700
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- Loss: $8,150 (total investment) - $7,700 (sale price) = $450
Therefore, the investor's loss is $450, which corresponds to option C mentioned in the question.