Question: You have purchased a call option on Johnson & Johnson common stock. The option has an exercise price of $57.50 and J & J's stock currently trades at $58.93. The option premium is $2.17 per contract.
a. Calculate your net profit on the option if J & J's stock price rises to $62.50 and you exercise the option.
b. Calculate your net profit on the option if J & J's stock price falls to $58.00 and you exercise the option.
c. If J & J's stock price falls to $58.00 show that it is more profitable to exercise than not exercise the option you have purchased.