Asked by DARIN FILMS on Jul 19, 2024
Verified
You purchase one MBI July 90 call contract for a premium of $4. The stock has a 2-for-1 split prior to the expiration date. You hold the option until the expiration date, when MBI stock sells for $48 per share. You will realize a ________ on the investment.
A) $300 profit
B) $100 loss
C) $400 loss
D) $200 profit
2-For-1 Split
A stock split where for each share owned, a shareholder receives an additional share, effectively doubling the number of shares.
Premium
The amount paid for an option or insurance policy above its intrinsic value or the amount that an asset's selling price is above its face value.
- Outline a range of strategies available for options trading and detail their respective financial outcomes.
- Investigate the effects of pricing options and the viability of particular strategies for profitability.
Verified Answer
RD
Rinkle DhillonJul 25, 2024
Final Answer :
D
Explanation :
Long call profit = 2max {0, [$48 − ($90/2)(100)]} − $400 = $200
Learning Objectives
- Outline a range of strategies available for options trading and detail their respective financial outcomes.
- Investigate the effects of pricing options and the viability of particular strategies for profitability.