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13.07.2022 - 14:03

Suppose you buy one SPX call option contract with a strike of 1,100. At maturity, the S&P 500 Index is at 1,154. What is your net gain or loss if the premium you paid was $46?

Question:

Suppose you buy one SPX call option contract with a strike of 1,100. At maturity, the S&P 500 Index is at 1,154. What is your net gain or loss if the premium you paid was $46?

Answers (1)

Louella April 15, 2023 в 14:34

Your net gain would be $44 (or 96%). Explanation: An SPX call option contract gives you the right to buy the S&P 500 Index at the strike price of 1,100. If at maturity the index is at 1,154, you can exercise your option and buy the index at 1,100, then sell it on the market at 1,154 for a profit of $54. However, you have also paid a premium of $46 for the option, so your net gain is $54 - $46 = $8. $8 is 17.4% of $46 (premium you paid), which is your profit percentage. But if we consider the amount you made in addition to your premium then your gain percentage is 96% ($54 + $46 = $100, which is the initial investment).

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