FRM Part I · FRM Exam Part I · Trading Strategies
A trader holds a share priced at $100 and has written a call with strike $105 for $2. At expiration the share is at $90. Ignoring dividends and financing, what is the profit or loss per share?
The trader loses $8 per share. The share falls $10 from $100 to $90, the written call expires worthless, and the $2 premium received offsets part of the loss, leaving a net loss of $8.
- ALoss of $10
- BLoss of $8Correct
- CLoss of $12
- DProfit of $2
Explanation
The share loses 100 - 90 = $10. The call expires worthless, so the $2 premium is kept. Net = -10 + 2 = -$8. Loss of $10 ignores the premium received.
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