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You write one IBM July 121 call contract for a premium of $3. You hold the...

You write one IBM July 121 call contract for a premium of $3. You hold the option until the expiration date, when IBM stock sells for $123 per share. You will realize a ______ on the investment.

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Answer #1

A short call option will be in loss if, at expiry, the the price of underlying stock is higher than the strike price

Loss on short call option = price of underlying stock at expiry - strike price - premium received

Loss on short call option = $123 - $121 - $3 = -$1

There is an overall profit because the difference in underlying stock price and strike price is less than the premium received.

You will realize a profit of $1 on the investment

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