You Wrote Ten Call Option Contracts on JIG Stock with a Strike

question 220

Multiple Choice

You wrote ten call option contracts on JIG stock with a strike price of $40 and an option price of $.40. What is your net gain or loss on this investment if the price of JIG is $46.05 on the option expiration date?

• A) -$6,450
• B) -$5,650
• C) $400
• D) $5,650
• E) $6,450

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Definitions:

Product Differentiation

The attempt by firms to convince buyers that their products are different from those of other firms in the industry. If firms can so convince buyers, they can charge a higher price.

Perfectly Elastic

A situation in economics where the quantity demanded or supplied changes by an infinite amount in response to any change in price; depicted by a horizontal line in price-quantity graphs.

Collusion

Cooperation among producers to limit production and raise prices so as to raise one another’s profits.

Barriers To Entry

Barriers to entry are obstacles that make it difficult for new competitors to enter an industry, including high initial investment costs, strict regulations, or strong brand loyalty among existing customers.