1) Using the table, what is the commission if an investor buys15 call option contracts with a...
Question:
1) Using the table, what is the commission if an investor buys15 call option contracts with a strike price of $30, if the optionprice is $4.00?
2)Now let?s assume the day before the option expires, the stockis trading at $40 per share. If the investor sells the options for$10.05 (makes the offsetting trade), how much is the netprofit?
**I am Not understanding how I will use strike pricein part 1 and stock price in the part 2
contract size= 100
I know it is ambiguous, but that is how it was posted inlecture notes examples.
Another similar example done in class; forreference;
If you buy 100 call option contracts that cost $0.50 peroption, what is the commission? What if the option costs $5.00each?
Solution:
Option price = $0.50
Total dollar amount = ($0.50)*(100 contracts)*(100options/contract) = $5,000
Commission = $45+(1%)*($5,000) = $95
Compare this to the minimum and maximumcommission:
Minimum = $30*1 + $2*99 = $228
Maximum = $30*5+$20*95 = $2,050
Therefore the commission will be $228 (since $95 isbelow the minimum)
Option price = $5.00
Total dollar amount = ($5.00)*100*100 =$50,000
Commission = $120 + 0.25%*($50,000) = $245
Therefore the commission will be $245.
(Note: since this is still 100 contracts, the max and min are thesame as in the first part)
Fundamentals Of Investments Valuation And Management
ISBN: 9781266824012
10th Edition
Authors: Bradford Jordan, Thomas Miller, Steve Dolvin