A customer sells 1 ABC Feb 40 Call @ $7 when the market price of ABC is $39. The stock moves to $50 and the customer is assigned. The stock is bought in the market for delivery. The gain or loss to the writer is:

A. $300 gain

B. $300 loss

C. $700 loss

D. $1,100 loss

Question

Business

Alvin Sparks

20 August, 12:17

A customer sells 1 ABC Feb 40 Call @ $7 when the market price of ABC is $39. The stock moves to $50 and the customer is assigned. The stock is bought in the market for delivery. The gain or loss to the writer is:

A. $300 gain

B. $300 loss

C. $700 loss

D. $1,100 loss

+2

Answers (1)

Know the Answer?

Liberty Lamb · Answer 1

B) $300 loss

Explanation:

The seller of the call must sell the stock at $40. Since the seller received $7 per stock in order to write the call, his total revenue = $40 + $7 = $47 per stock. Since the stock's price is $50, the seller of the call will lose $3 per stock ( = $50 - $47).

Since every call option includes 100 stocks, the total loss = $3 per stock x 100 stocks = $300 loss

A customer sells 1 ABC Feb 40 Call @ $7 when the market price of ABC is $39. The stock moves to $50 and the customer is assigned. The stock is bought in the market for delivery. The gain or loss to the writer is:A. $300 gainB. $300 lossC. $700 lossD. $1,100 loss

A customer sells 1 ABC Feb 40 Call @ $7 when the market price of ABC is $39. The stock moves to $50 and the customer is assigned. The stock is bought in the market for delivery. The gain or loss to the writer is:

A. $300 gain

B. $300 loss

C. $700 loss

D. $1,100 loss