Series 7 practice questionhardOptions — Index Options Calculation
An investor buys 1 SPX 4200 call at $35 when the S&P 500 Index is at 4180. At expiration, the index is at 4260. What is the investor's profit?
- A$2,500✓ Correct answer
- B$6,000
- C$2,000
- D$2,800
Explanation
Why A — $2,500
The call's intrinsic value at expiration is 4260 - 4200 = 60 points. Subtract the premium paid of 35 points: 60 - 35 = 25 points profit. Each index point is worth $100 for standard SPX options: 25 x $100 = $2,500. Index options settle in cash, so the investor receives the cash difference.
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