You Sold (Wrote) Five TWX Call Option Contracts with a Strike

question 232

Multiple Choice

You sold (wrote) five TWX call option contracts with a strike price of $40 when the option was quoted at $3.20. The option expires today when the value of TWX stock is $38.15. Ignoring trading costs and taxes, what is the total profit or loss on your investment?

• A) -$1,600
• B) -$675
• C) $0
• D) $500
• E) $1,600

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Definitions:

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set, often used in calculating the cost of inventory or the average cost of capital.

Unit Cost

The cost incurred to produce, purchase, or acquire a single unit of a product or service.

FIFO Costing

An inventory valuation method where the costs of the earliest goods purchased are the first to be recognized in determining cost of goods sold.

Gross Profit

The difference between sales revenue and the cost of goods sold (COGS), indicating the profitability of a company's core business activities.