Question

You bought a call option on € with an exercise price of $2 and you paid...

You bought a call option on € with an exercise price of $2 and you paid $0.05/€ as premium. At the same time, you sold a put on € with an exercise price of $2 and you received $0.12/€ as premium. a. What is your profit/loss if ST = $1.94/€? b. What is your profit/loss if ST = $1.99/€? c. What is your profit/loss if ST = $2.10/€?

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Homework Answers

Answer #1

Solution:

Given,

Exercise price of option on € (both Call and Put) is $2

Premium for Call option on € = $0.05/€

Premium for Put option on € = $0.12/€

Computation of Profit/Loss:

Profit / (Loss) = Difference in price from call or put - Call premium - Put Premium

Case 1: if ST - $1.94/ €:

Profit / (Loss) per € = {$2 - $1.94) - $0.05 - $0.12

= - $0.11.

Case 2: if ST - $1.99/ €:

Profit / (Loss) per € = {$2 - $1.99) - $0.05 - $0.12

= - $0.16.

Case 3: if ST - $2.10/ €:

Profit / (Loss) per € = {$2.10 - $2) - $0.05 - $0.12

= - $0.07.

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