Question

# Question 8 (1 point) You write a short put option giving the purchaser the right to...

Question 8 (1 point)

You write a short put option giving the purchaser the right to sell 100 shares of Rothbard Corporation for a premium of \$3,400. The strike price of the option is \$20 and the final stock price is \$100. What is your profit or loss?

Question 9 (1 point)

You write a short call option giving the purchaser the right to buy 100 shares of Garrett Corporation for a premium of \$4,500. The strike price of the option is \$45 and the final stock price is \$250. What is your profit or loss?

Solution 8:

Since the final stock price is higher then the strike price, therefore the purchaser of right to sell will not exercise the option.

Hence Profit of short put option = Amount of premium received = \$3,400

Solution 9:

Since the final stock price is higher than the strike price, therefore purchaser of right to buy will exercise the call option. Therefore,

Loss on Short Call option = Loss due to stock price - Premium received = (\$250-\$45)*100 - \$4500

= \$20500- \$4500 = \$16,000 loss

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