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You have purchased a call option contract on Johnson & Johnson common stock. The option has an exercise price of $90.00 and J & J’s stock currently trades at $90.43. The option premium is quoted at $2.17 per contract. (LG 10-4)
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Calculate your net profit on the option contract if J & J’s stock price rises to $94.00 and you exercise the option.
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Calculate your net profit on the option contract if J & J’s stock price falls to $89.50 and you exercise the option.
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If J & J’s stock price falls to $89.50 show that it is more profitable to exercise than not exercise the option you have purchased.
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solution
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