Ask Question
20 November, 14:33

The XYZ Company expects stock prices to increase. The current stock price is $37. The company purchases a call option, with an exercise price of $40 and a premium of $2 per share. Just before the expiration, stock price rises to $44. Should the investor exercise the call option or not? What will the total payoff per share be?

+4
Answers (1)
  1. 20 November, 18:18
    0
    Payoff per share = $4

    Profot pershare = $2

    Explanation:

    In a call option, the long (the party that buy the put) will have gain on the option when the underlying asset price is higher than the excercise price of that asset (imagine the advantage that you can buy an apple at $10 when its market price is $12). Because the stock price is $44, higher than exercise price of 40, so the company should exercise the call. Total payoff per share is 44 - 40 = $4 (and profit per share = 4 - 2 = $2).

    Note: We dont include premium to buy the call here because the question asking about payoff. We on include premium in calculations when the question is about profit.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “The XYZ Company expects stock prices to increase. The current stock price is $37. The company purchases a call option, with an exercise ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers