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The current price of an American call option with exercise price is $130 written on X company is $2.40. The call option expires on March 19,2019. the current price of the stock of X company is $126.69. If you buy the stock today and the stock price rises to $140.00 before the option expires. How much $ can I expect to make by exercising the option to buy the stock and selling the stock at market value of $140.00. please include both the price of the option and the exercise price as cost.

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  • Your description of your position isn't clear. If the 3/19 $130 call is written then you are short the call and you are obligated to sell the stock if the call owner exercises it. Asking about exercising the call to buy the stock is a non starter if the call was written.
    – Bob Baerker
    Feb 20, 2019 at 20:36
  • en.wikipedia.org/wiki/Black%E2%80%93Scholes_equation
    – user67084
    Feb 20, 2019 at 21:03
  • The current price of an American call option with exercise price $130, written on McCormick & Company stock is $2.40. The call option expires on March 31, 2019. The current price of one McCormick & Company stock is $126.69. If you buy the call today and the stock price rises to $140 before your option expires, How much money would you expect to make by exercising the option to buy the stock and simultaneously selling the stock at market value of $140? Include both the price of the option and the exercise price as costs.
    – Demi McNamara
    Feb 20, 2019 at 22:07
  • perhaps i didn't word it right originally.
    – Demi McNamara
    Feb 20, 2019 at 22:07
  • Thanks. I tried to use the black scholes method/calculator but this question doesn't provide me with the information i need to use it
    – Demi McNamara
    Feb 20, 2019 at 22:38

1 Answer 1

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This sounds like a homework problem. Here's a hint: if you're long the call and exercise it, you get to buy the stock at the strike.

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    Hint #2 for the OP: Profit equals proceeds received from sale of position less cost of "two" positions (Pssst, there are 3 transactions here). Helpful Options 201 hint for rest of the real world is sell to close options rather than exercise so that fewer B/A slippage and commissions incurred with the exception being when ITM and bid price is below parity and you want to avoid the haircut :->)
    – Bob Baerker
    Feb 20, 2019 at 23:11

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