The Writer of a $14 Call Option on a BHP

question 45

True/False

The writer of a $14 call option on a BHP share has received a premium of 50 cents. If the spot price at expiry time is $16, the writer makes a net loss of $1.50.

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Definitions:

Periodic Inventory Method

An accounting method where inventory value and cost of goods sold are determined at the end of an accounting period.

Beginning Inventory

The price of items up for sale at the onset of a fiscal period.

Owner's Equity

The residual interest in the assets of the entity after deducting liabilities, representing the ownership interest of shareholders in a company.

Financial Statements

Consolidated reports detailing the financial performance and position of a company, including the balance sheet, income statement, and cash flow statement.