Final answer:
The net gain from writing eight call option contracts with a strike price of $42.50 and a call price of $1.35, when the stock price is $40.30 at expiration, is $1,080, as the options expire worthless and the writer keeps the premium collected.
Step-by-step explanation:
When you write a call option, you're giving someone else the right to purchase shares from you at the strike price until the expiration date. Since you wrote eight contracts at a strike price of $42.50 and the stock is at $40.30 on expiration, the options would expire worthless, as no one would exercise the option to buy at $42.50 when they can buy on the market at $40.30. For each option contract, which typically equates to 100 shares, you would have received $1.35 per share when you sold the options. Therefore:
- Calculate the total income from selling the options: 8 contracts x 100 shares x $1.35 = $1,080.
- Since the stock price is lower than the strike price at expiration, the options are not exercised, and there is no other cost or loss associated with them expiring.
- Your net gain is the income from selling the options, $1,080.
Considering these points, your net gain from this option investment is $1,080.