Derivative Markets
Call option payoff
Can a call option finish in the money and still lose money?
Practise call option payoff with a worked example and a short check.
A call gives its buyer the right to buy at the strike. Profit at expiry subtracts the premium.
Expiry profit = max(spot − strike, 0) − premium
The buyer can walk away if spot is below strike. At $104, the right to buy for $100 pays $4. The $6 premium turns the payoff into a $2 loss.
With strike $100 and premium $6, a spot of $104 yields a $4 payoff and a $2 loss.
The buyer can walk away if spot is below strike. At $104, the right to buy for $100 pays $4. The $6 premium turns the payoff into a $2 loss.
If spot is $110 at expiry, what is the buyer’s profit per share?