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You are long a $95\$95 call. The stock settles at $103\$103. What is the payoff, ignoring premium?

Answer with a number. Fractions, powers and expressions like 23/6 or C(52,5) are read correctly in practice.

Show the answer and worked solution

Answer

88

The payoff of a call at expiry is max⁡(ST−K,0)\max(S_T - K, 0), so here it is max⁡(103−95,0)=8\max(103 - 95, 0) = 8. The floor at zero is the whole point of an option: you never have to exercise into a loss. The question asks for payoff rather than profit, which is deliberate. Profit subtracts the premium paid and would be negative if you had paid more than 88, and keeping the two apart is what lets you reason about breakevens cleanly.

Worked solution

  1. Formula
    CT=max⁡(ST−K, 0)C_T = \max(S_T - K,\ 0)
  2. Substitute
    =max⁡(103−95, 0)= \max(103 - 95,\ 0)
  3. Solve
    =8= 8
  4. Answer
    $8\$8

Takeaway: A payoff is floored at zero; the premium is a separate question.

Answer it in practice – your answer is marked and recorded.

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You are long a $95 call. The stock settles at $103. What is the payoff, ignoring premium? · QuantMax