Final answer:
The student will incur a net loss of $510 after selling three call option contracts and having them exercised, with the underlying asset price being above the strike price at expiration.option A is correct answer.
Step-by-step explanation:
The student has sold three call option contracts, each for 100 shares, at a price of $1.40 per option. Since the price of the underlying asset is $38.10 at expiration, which is above the strike price of $35, the options will be exercised. For each contract covering 100 shares, the loss per share is the difference between the market price ($38.10) and the strike price ($35), which is $3.10.
However, the investor has already received a premium of $1.40 per share for selling the option. Multiplying the net loss per share by the total number of shares (300 shares in total) gives us the total net loss, and we subtract this from the premium received to find the overall profit or loss.
Let's calculate the loss per contract: 100 shares * $3.10 = $310.
Total loss for three contracts is: 3 * $310 = $930.
Total premium received: 3 contracts * 100 shares/contract * $1.40/share = $420.
Net loss is: Total loss - Premium received = $930 - $420 = $510.
Therefore, the net loss is option A ($510), assuming there are no transaction fees or other costs not mentioned in the problem.