Question

You write one IBM July 128 call contract for a premium of $14. You hold the option until the expiration date, when IBM stock sells for $137 per share. You will realize a ______ on the investment.
$500 profit
$900 loss
$2,300 loss
$900 profit

Answer 1

You write one IBM July 128 call contract for a premium of $14. You hold the option until the expiration date, when IBM stock sells for $137 per share. You will realize a $500 profit on the investment 128 + 14 = 142, 142 - 137 = 5, 5 × 100 = $500 profit

The current market value of an option contract is known as an option premium. Thus, it is the money that the seller (writer) of an option contract receives from the opposite side. Premiums for in-the-money options are made up of intrinsic and extrinsic value. Premiums for out-of-the-money options only include extrinsic value.
A contract with a premium of $0.11 would cost the buyer $11 overall, or $0.11 multiplied by 100 shares, because options are sold in groups of 100 shares, and a premium is paid for each of those shares. The intrinsic value of the underlying asset, its volatility, and the amount of time until the contract's expiration are just a few of the variables that affect premiums continually.

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