You Sold (Wrote) Three TXA Call Option Contracts with a Strike

question 321

Multiple Choice

You sold (wrote) three TXA call option contracts with a strike price of $35 when the option was quoted at $2.60. The option expires today when the value of TXA stock is $33.70. Ignoring trading costs and taxes, what is your total profit or loss on your investment?

• A) $0
• B) $260
• C) $390
• D) $780
• E) $1,170

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Definitions:

American Call Option

An option contract that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a predetermined price before or on a specified date.

Exercise Price

The predetermined cost at which the owner of an option can purchase (in the case of a call option) or sell (in the case of a put option) the underlying asset or commodity.

Conversion Ratio

The number of shares an investor receives when converting a convertible security, like a convertible bond or preferred stock, into common stock.

Callable Bonds

Bonds that can be redeemed by the issuer before their maturity date at a specified price.