Introduction to Derivatives Lecture Notes

Review Questions

$1-$ A call option on Bedrock Builders stock has a market price of $$7.$ The stock sells for $ a share, and the option has an exercise price of $$25$ a share?

a$-$ What is the exercise value of the call option?

Exercise value $=$ current stock price $-$ exercise price

$b-$ What is the profit or loss from buying the call $($call premium$)?$

Option premium $=$ option market price $-$ option exercise value