5) Find the profit for each of the following positions in options if the price p
ID: 2646291 • Letter: 5
Question
5) Find the profit for each of the following positions in options if the price per share at expiration is $40. Note: all calls and puts are lots of 100 shares. Prices and premiums are per share.
5a
Long Put
$45
Strike Price
$2
premium paid
Profit
5b
Short Put
$38
Strike Price
$2
premium received
Profit
5c
Long Call
$39
Strike Price
$2
premium paid
Profit
5d
Short Call
$38
Strike Price
$2
premium paid
Profit
5a
Long Put
$45
Strike Price
$2
premium paid
Profit
5b
Short Put
$38
Strike Price
$2
premium received
Profit
5c
Long Call
$39
Strike Price
$2
premium paid
Profit
5d
Short Call
$38
Strike Price
$2
premium paid
Profit
Explanation / Answer
5a. Long Put :
Formula of Long Put = Max (0,K-S), where K= Strike Price, S = Price of Underlying Asset
Here Long put at $2 premium
So, Long Put profit = (45-40) = 5 - 2 Premium = $3 Profit
Total Long Put profit = $3*100 = $300
5b. Short Put :
In Short put case maximum put will be limited to premium received for selling put.
So, Premium received = $2
Total Profit = $2 * 100 = $200
5c. Long Call :
Formula of Long Call = Max (0, S - K), where K=Strike price, S = Price of Underlying Asset
Here Long call at $2 premium
Long Put profit = (40-39) = $1 - $2 Premium = ($1)
Total Loss = 100*$1 = $100
5d Short Call :
Profit is limited to the premium received for selling the call.
If the price of stock keeps rising above strike price,we are lossing money.
here strike price is below then stock price so loss of $2 plus $2 premium paid = $4 Loss amount
Total Loss = $4*100 = $400
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