You have purchased a call option contract on Smith & Smith common stock. The option contract is for 100 shares. The option has an exercise price of $ 43.00 and S&S’s stock currently trades at $40.00. The option premium is quoted at $ 2.00. Show your work.
A) If the stock price rises to $42.00, would you exercise or not exercise the option and what would be your gain or loss?
B) You will make a profit on the option if the S&S stock price rises above what amount? To earn a profit, you must recoup the price you paid for the call, plus the exercise price: