Question

The price of a four-month GE call option with an exercise price of $35 is $6. The current price of GE stock is $40 per share. The call holder exercises the call at expiration when the price of GE stock is $43. What is the payoff to the call holder

Answer 1

Step-by-step explanation:

Profit on exercise of call option = Price of stock as at expiry - strike price

=43-35 =8$

Net profit = (Profit on exercise of call option-Premium paid) * Contract size

=(8-6)*100 = 2*100 =200$

Payoff is $200

Answer 2

$ 200

Step by Step Explanation:

Call holder exercises price of GE stock -

four-month GE call option

$43- $34=$8

Profit on exercise of call option is $8

Profit on exercise of call option-Premium paid ×Contract size = Net profit

$8- $6= $2

$2×100 = $ 200

Therefore the payoff to the call holder is $200