Problem:
An investor writes a January call option on 100 shares of stock. The strike price of the market option is $25 and the option price is $2. Suppose that when the option expires the market price of the stock is $28.
Required:
Question 1: What is the total gain or loss of the investor. Take the price of the option into account when determining the total gain or loss?
Question 2: What would the total gain or loss be if, at the expiration, the market price of the stock was $21?
Note: Show supporting computations in good form.