A writer sells 100 call options with strike $46 for $0.94 each and deposits these premiums in a bank. The calls mature in 30 days, and the bank's interest rate over those 30 days is 3%. At expiry the underlying asset of the call is worth $39 each. At expiry, the writer withdraws all cash from the bank, purchases the necessary amount of shares on the open market and completes the call contract. What is the writer's profit?
A writer sells 100 call options with strike $46 for $0.94 each and deposits these premiums in a bank. The calls mature in 30 days, and the bank's interest rate over those 30 days is 3%. At expiry the underlying asset of the call is worth $39 each. At expiry, the writer withdraws all cash from the bank, purchases the necessary amount of shares on the open market and completes the call contract. What is the writer's profit?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
A writer sells 100 call options with strike $46 for $0.94 each and deposits these premiums in a bank.
The calls mature in 30 days, and the bank's interest rate over those 30 days is 3%.
At expiry the underlying asset of the call is worth $39 each. At expiry, the writer withdraws all cash from the bank, purchases the necessary amount of shares on the open market and completes the call contract.
What is the writer's profit? Give your answer correct to two decimal places, and if the writer makes a loss include a minus sign.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education