Question

Monica would like to participate in the limited upside potential of XYZ, Inc. She wrote (or sold) six XYZ, Inc. call contracts on this stock with an exercise price of $6 expiring in 3 months. The premium is $3.5 each. Assume that there are no transaction costs, and she did not close out her position before the expiration date. Suppose the option buyer exercises his/her contracts at expiration. (1) If the stock price at expiration is $7.5, Monica will make a profit of $750. (2) If the stock price at expiration is $9, Monica will make a profit of $200. (3) If the stock price at expiration is $10, Monica will lose $200. Which of the above is/are true about the net profit or loss of Monica’s investment? Group of answer choices: (1), (2), and (3) (1) only (1) and (2) only (2) only (2) and (3) only

          Monica would like to participate in the limited upside potential of XYZ, Inc. She wrote (or sold) six XYZ, Inc. call contracts on this stock with an exercise price of $6 expiring in 3 months. The premium is $3.5 each. Assume that there are no transaction costs, and she did not close out her position before the expiration date.

Suppose the option buyer exercises his/her contracts at expiration.

(1) If the stock price at expiration is $7.5, Monica will make a profit of $750.
(2) If the stock price at expiration is $9, Monica will make a profit of $200.
(3) If the stock price at expiration is $10, Monica will lose $200.

Which of the above is/are true about the net profit or loss of Monica’s investment?

Group of answer choices:
(1), (2), and (3)
(1) only
(1) and (2) only
(2) only
(2) and (3) only

Added by Noelia D.

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