Products & Their RisksQuestion 96 of 398
An investor buys one XYZ call with a $30 strike for a $2 premium. At expiration XYZ trades at $35 and the investor exercises. Ignoring commissions, what is the investor's net profit per share?
a.$5
b.$3
c.$2
d.$0
Explanation
Intrinsic value at expiration is $35 - $30 = $5 per share. Subtracting the $2 premium paid gives a net profit of $3 per share (or $300 on the 100-share contract). The breakeven point on a long call is the strike plus the premium, here $32.
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