Series 7 practice questionmediumOptions — Selling Before Expiration
An investor bought 1 JKL Oct 50 call at $4. Two months later, with JKL at $58, the call is trading at $9. If the investor sells the call, what is the profit?
- A$400
- B$900
- C$800
- D$500✓ Correct answer
Explanation
Why D — $500
The investor bought the call at $4 and sold at $9, for a profit of $5 per share, or $500 per contract. Note that the investor does not need to exercise the option to profit — selling (closing sale) captures both intrinsic value and any remaining time value, which is typically more profitable than exercising.
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