Question

On December 21, 2020, you purchased 100 shares of ABC company at $11 per share. You plan to sell your shares on December 21, 2021 and are concerned about  downside risk. A put option on ABC stock with an exercise price (K) of $40 is currently priced (P) at $2 per share. Also, two call options on ABC stock with exercise prices (K) of $40 and $65 are priced (C) at $2.5 and $1.50 per share, respectively. All options expire on December 21, 2021.  What will be net profit/loss per share on a short call (use K=$65 call) if the stock price is $10 per share?

	A.	$1.5
	B.	-$1.5
	C.	$3.5
	D.	$23.5

Answer 1

Short Call option:

Strike Price (K) = $65

Call Price (C) = $1.50

Stock Price on maturity (ST) = $10

We can compute the net profit/loss per share(P/L) with following equation:

Correct answer: A. $1.5