Question

The current price of Stock A is $305/share. You believe that the price will change in...

The current price of Stock A is $305/share. You believe that the price will change in the near future, but your are not sure in which direction. To make a profit from the price change, you purchase ONE call option contract (each contract has 100 calls) and TWO put option contracts (each contract has 100 puts) at the same time. The call option and the put option have the same expiration date. The strike price of the call option is $310, and the premium is $3.10 per call. The strike price of the put option is $300, and the premium is $8.30 per put.

If the stock price increases to $307/share on the expiration date, what is the profit and payoff of your portfolio?

Note, profit and payoff are different.

Homework Answers

Answer #1

Both call and put option cannot be exercised resulting in loss of premium amount.

Strike price Exercised or lapsed Payoff Initial Investment Profit
1 Call option at $310
($3.10*100)
$307 Lapsed 0 $310.00 ($310.00)
2 Put option at $300
($8.30*200*2)
$307 Lapsed 0 $3,320.00 ($3,320.00)
Total Payoff 0 Total Loss ($3,630.00)
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