Question

Both a call and a put currently are traded on stock Xue; both have strike prices of $50 and maturities of 6 months.

What will be the profit/loss to an investor who buys one call contract at $3 a share? How about for the person who buys one put contract for $6.50 a share? [Hint: profit= value of the option at expiration- initial cost]

Scenario	Call option: Profit/Loss	Put option: Profit/Loss
$40
$45
$50
$55
$60

Answer 1

Call options gives it's buyer right to buy underlying at specified price in future where as Put options gives it's buyer right to sell underlying at specified price in future

Statement showing profit or loss if inestor bought call option with strike price of $50 @3$

Price as at expiry	Profit on call option Strike price = 50$	Premium paid	Net profit & Loss
	A	B	C = A- B
40	0	3	-3
45	0	3	-3
50	0	3	-3
55	5	3	2
60	10	3	7

Statement showing profit or loss if inestor bought call option with strike price of $50 @6.5$

Price as at expiry	Profit on put option Strike price = 50$	Premium paid	Net profit & Loss
	A	B	C = A- B
40	10	6.5	3.5
45	5	6.5	-1.5
50	0	6.5	-6.5
55	0	6.5	-6.5
60	0	6.5	-6.5