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You wrote five call option contracts on MNO stock with a strike price of $25 and an option price of $.70. What is your total net profit or loss on all transactions related to this investment if the price of MNO is $24.70 on the option expiration date? Ignore taxes and transaction costs.

O -$500

O $425

O $350

O $500

O −$350

1 Answer

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Final answer:

Your total net profit from writing five call option contracts when the price of MNO is $24.70 upon expiration is $350 since the options expire worthless and you keep the premiums collected.

Step-by-step explanation:

The total net profit from writing five call option contracts with a strike price of $25 when the price of MNO stock is $24.70 at the option expiration date would be positive. Each contract typically represents 100 shares. Writing a call option means you are giving someone else the right to buy the stock from you at the strike price if the market price goes above the strike price. Since the market price is below the strike price, the options will expire worthless and the option writers get to keep the premium.

In this case, the total premium collected from writing five contracts at an option price of $0.70 is 5 contracts x 100 shares per contract x $0.70 = $350. Since the market price is below the strike price, the options are not exercised, and the writer's total profit is the premium collected. Therefore, the total net profit on all transactions related to this investment is $350.

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