Question

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?

Your Answer:Question 8 options:

Answer

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?

Answer 1

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