Answer:
Profit = $0.60
Step-by-step explanation:
Call option is an option to buy by paying a call premium. The option is exercised when current market price is more than the strike price. In this case, the strike price is $40 and the premium is $1.30, whereas the current market price is $41.90. The option buyer can exercise the contract by purchase the stock at lower price and sell at current market price to gain return. The gain will be calculated as:
Value = Current Price - Strike Price
Value = 41.90 - 40
Value = 1.90
To calculate the profit, we needs to subtract premium cost from value:
Profit = Value - Call Premium
Profit = 1.90 - 1.30
Profit = $0.60