An investor holds a long call option. The strike price is 40 USD and the premium paid is 3 USD. If the stock price at expiration is 42 USD, what is the profit or loss?
Explanation
Profit calculation must deduct the initial premium paid from the payoff.
Other questions
Which of the following best describes a forward contract?
In a futures contract, what is the role of the clearinghouse?
An investor has a futures account with an initial margin of 5,000 USD and a maintenance margin of 3,500 USD. If the account balance falls to 3,200 USD, how much must the investor deposit?
Which of the following instruments is considered a contingent claim?
For a European put option, when can the holder exercise the option?
An investor purchases a call option with a strike price of 50 USD for a premium of 5 USD. What is the breakeven price for the underlying asset?
What is the maximum loss for the buyer of a call option?
In a plain vanilla interest rate swap, what is typically exchanged?
Which term describes the total number of outstanding futures contracts that have not been closed or delivered?
A put option with a strike price of 100 USD is written on a stock currently trading at 90 USD. What is the intrinsic value of this option?
Which of the following is a characteristic of Over-The-Counter (OTC) derivatives markets?
What is the maximum profit for a short call position?
If a call option is 'out-of-the-money', what is the relationship between the spot price (St) and the strike price (X)?
Which instrument provides protection to a bondholder against a downgrade or default by the borrower?
What does the 'mark-to-market' process in futures contracts involve?
Which of the following creates a 'forward commitment'?
You sell a put option with a strike price of 80 USD for a premium of 4 USD. What is your breakeven price?
What defines a Bermudan option?
In a swap, what is the 'tenor'?
A trader is 'short' a forward contract. This means the trader:
Why might a market participant prefer a futures contract over a forward contract?
What is the settlement price in a futures market?
Which derivative instrument typically requires no payment at initiation?
In a swap, if the net rate is positive for the fixed-rate payer, what happens?
What is the maximum loss for a writer (seller) of a naked call option?
Which type of swap is considered the simplest and most common?
For a put option, the condition 'In-the-money' applies when:
What is 'maintenance margin' in the context of futures?
Which party in a forward contract has the obligation to take delivery of the asset?
What is a 'credit spread option'?
What does the term 'variation margin' refer to?
If a European option and an American option on the same asset have the same strike price, what is true at expiration?
A call option is 'At-the-money' when:
What is the primary purpose of a Credit Default Swap (CDS)?
Which derivative allows for the 'netting' of payments so only one payment is made per period?
Calculate the intrinsic value of a call option with a strike of 50 USD when the underlying asset is 45 USD.
Who receives the premium in an option contract?
What distinguishes 'contingent claims' from 'forward commitments'?
In a futures contract, if the variation margin is not deposited, what happens?
A long put position allows the investor to profit if:
Are swaps generally regulated or unregulated?
What is the maximum profit for a long put option?
Which of the following is NOT a feature of futures contracts?
In an interest rate swap where Party A pays 8 percent fixed and receives LIBOR + 2 percent, what is the net payment if LIBOR is 5 percent on a notional of 100,000 USD?
Which option position has the potential for infinite loss?
The term 'underlying asset' in a derivative contract refers to:
Are participants in the swap market typically individuals?
What happens if a futures investor has a balance above the initial margin?
Which of the following is true regarding default risk in forwards vs futures?