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A trader buys 100 European call options (i.e., he buys one option contract) with a strike...

A trader buys 100 European call options (i.e., he buys one option contract) with a strike price of $20 and a time to maturity of one year. The cost of each option is $4. The price of the underlying asset proves to be $25 in one year. What is the trader’s profit?(with the solution process)

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Answer #1

Trader's Profit = No. of Options x [S - X - Premium]

= 100 x [$25 - $20 - $4] = 100 x $1 = $100

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