Question

1, You short a put with strike K. The underlying price at expiration is S. What's your payoff?

a, S - K if K > S and zero otherwise

b, 0

c, K - S

d, S - K

2, What's the payoff at maturity to a long call with strike K and underlying asset price S?

a, max(S-K,0)

b, min(S-K,0)

c, max(K-S,0)

d, min(K-S,0)

3, What's the payoff at maturity to a long put with strike K and underlying asset price S?

a, max(K-S,0)

b, max(S-K,0)

c, min(S-K,0)

d, min(K-S,0)

Answer 1

If short a put, it means you are seller, so your income is limited and is equal to premium received but your loss is unlimited, that is, payoff = 0 or negative, so correct answer :

Ans 1: a :  S - K if K > S and zero otherwise

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If you have a long call, implies you expect price to rise. If S > K, positive payoff, otherwise = 0

so correct answer :

Ans 2 : a : max(S-K,0)

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If you have a long put, implies you expect price to fall. If S < K, positive payoff, otherwise = 0

so correct answer :

Ans 3 : a : max(K-S,0)

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