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.

Understanding Call Option Contracts

A call option contract gives an investor the right, but not the obligation, to buy a specified amount of an underlying security at a set price within a certain time frame. In this case, the investor purchased a call option contract with a strike price of $50.

Calculating Total Expenses

The investor paid $4.5 for the call option contract. When the stock price reaches $60 and the investor exercises the option, they need to pay 0.75% to exercise ($0.45) and another 0.75% to sell the stock ($0.45). Therefore, the total expenses for the investor will be $4.5 + $0.45 + $0.45 = $5.40.

Calculating Profit

To determine the investor's profit, we subtract the total expenses ($5.40) from the selling price of the stock ($60). Therefore, the profit will be $60 - $5.40 = $54.60. Overall, the investor's profit from buying and exercising the call option contract at a stock price of $60 will be $54.60.
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