A Trader Purchases 10 BHP Call Options,each Contract Being for 1,000

question 9

Multiple Choice

A trader purchases 10 BHP call options,each contract being for 1,000 BHP Billiton shares,at a strike price of $32.20.The trader then closes out the position when the market price for BHP Billiton shares is $32.50.What has been the change in the trader's wealth position?

• A)The trader made a loss of $300 ignoring transaction costs.
• B)The trader made a profit of $300 ignoring transaction costs.
• C)The trader made a loss of $3,000 ignoring transaction costs.
• D)The trader made a profit of $3,000 ignoring transaction costs.

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Definitions:

Debt Ratio

A financial ratio that measures the extent of a company's leverage by comparing total liabilities to total assets.

Book Value

The book value represents the net asset value of a company calculated as total assets minus intangible assets (patents, goodwill) and liabilities.

EPS

Earnings Per Share, a metric that divides a company's profit by the outstanding shares of its common stock, indicating the company's profitability on a per-share basis.

Debt-to-Total-Assets Ratio

A financial ratio that indicates the proportion of a company’s assets that are financed by debt, used to assess financial leverage and risk.