How to Calculate Profit for Investor Buying Call Option Contract
Consider an investor who bought one call option contract. The option price is $4.5 and the strike price is $50. How much he will pay? Assume the stock price becomes $60 and the investor decides to exercise. The investor has to pay 0.75% to exercise and 0.75% to sell the stock. How much will be his profit?
To calculate the total amount the investor will pay, we need to multiply the option price by the number of contracts. Since the question does not specify the number of contracts, let's assume it to be 1. Therefore, the investor will pay $4.5 for the call option contract. Now, let's calculate the profit if the investor exercises the option at a stock price of $60. The investor needs to pay 0.75% of the stock price to exercise, which would be $0.45. After exercising, the investor needs to pay 0.75% of the stock price again to sell the stock, another $0.45. Thus, the total expenses for the investor will be $4.5 (option price) + $0.45 (exercise fee) + $0.45 (selling fee) = $5.40. To find the profit, we subtract the total expenses from the selling price of the stock. The stock price is $60, and the total expenses are $5.40. Therefore, the profit will be $60 - $5.40 = $54.60. So, the investor's profit will be $54.60.