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9 August, 20:36

A customer buys 100 shares of ABC stock at $44 and sells 1 ABC Jan 45 Call at $5. Subsequently, the market price of ABC goes to $59 and the call contract is exercised. The customer has a:

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  1. 9 August, 22:02
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    loss = $1,000

    Explanation:

    the customer will receive $5 (call price) + $44 (call price) = $49 for every share that he/she owns.

    since the market price was $59, then the customer lost $59 - $49 = $10 for every share that he/she owned, resulting in a total loss = $10 per share x 100 shares = $1,000

    A call option gives the buyer the option to purchase a stock at a set price during a specific time frame.
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