You have purchased a call option contract on Johnson & Johnson common stock. The option has an exercise price of $ 89.00 and J & J’s stock currently trades at $ 90.43. The option premium is quoted at $ 2.17 per contract.
a. Calculate your net profit on the option contract if J & J’s stock price rises to $ 94.00 and you exercise the option.
b. Calculate your net profit on the option contract if J & J’s stock price falls to $ 89.50 and you exercise the option.
c. If J & J’s stock price falls to $ 89.50 show that it is more profitable to exercise than not exercise the option you have purchased.