A customer sells short 100 shares of ABC at $35 and buys 1 ABC Jul 35 Call @ $3. The stock falls to $30 and the customer closes the option contract at $1 and buys the stock at the current market price. The customer has a:A. $200 lossB. $300 lossC. $200 gainD. $300 gain

Question

Business

Bruno Blackwell

10 May, 05:11

A customer sells short 100 shares of ABC at $35 and buys 1 ABC Jul 35 Call @ $3. The stock falls to $30 and the customer closes the option contract at $1 and buys the stock at the current market price. The customer has a:A. $200 lossB. $300 lossC. $200 gainD. $300 gain

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Answers (1)

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Shaun · Answer 1

The answer is $300 gain.

Explanation:

Operations:

Short 100 shares of ABC at $35 each = 100 * 35 = + $3,500 Buy 1 ABC Jul 35 Call @ $3 (one call equals to 100 shares) = 100 * (3) = $ (300), accumulated = + 3,500 - 300 = + 3,200 Closes the option contract at $1 = 100 * 1 = + $100, accumulated = + 3,200 + 100 = + 3,300 Buys the stock at the current market price (buys 100 stock @ $30 each) = 100 * (30) = $ (3,000), accumulated = + 3,300 - 3,000 = + $300.