Determining the total gain or loss


Problem:

An investor writes a January call option on 100 shares of stock. The strike price of the market option is $25 and the option price is $2. Suppose that when the option expires the market price of the stock is $28.

Required:

Question 1: What is the total gain or loss of the investor. Take the price of the option into account when determining the total gain or loss?

Question 2: What would the total gain or loss be if, at the expiration, the market price of the stock was $21?

Note: Show supporting computations in good form.

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Accounting Basics: Determining the total gain or loss
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