Suppose you buy one SPX call option with a strike of 1,475 and write one SPX cal

Question

Suppose you buy one SPX call option with a strike of 1,475 and write one SPX call option with a strike of 1,500. What are the "per share" (i.e., per unit) payoffs at maturity to this position for S&P 500 Index levels of 1350, 1400, 1450, 1500, and 1550? (Negative answers should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required.)

        

Index level Long call
payoff Short call
payoff Total payoff    1350         1400            1450            1500            1550        

Explanation / Answer

Option in case of long call (buy) will be exercised if strike price lower than market price.

Option in case of short call(write) will be exercised if strike price is lower than market price

   -50   

[1500-1550] resulting in loss as buyer of option will exercise th option since he will get index at 1500 as opposite to market price of 1550

Index level Lonf call payoff short call payoff total payoff 1350 0 (not exercised) 0 0 1400 0 0 0 1450 0 0 0 1500 25 [1500-1475] exercised resulting in gain 0 [netural between whether to exercise option or not] 25 1550 75   [1550-1475] resulting in gain

   -50   

[1500-1550] resulting in loss as buyer of option will exercise th option since he will get index at 1500 as opposite to market price of 1550

25

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