Question

What would be the profit or loss per share of stock to an investor who bought the
October maturity IBM call option with exercise price $100, if the stock price at the
expiration of the option is $104? What about a purchaser of the put option with
the same exercise price and maturity?

Answer 1

Profit / (Loss) from a call option = max (S - K, 0) - C

Profit / (Loss) from a put option = max (K - S, 0) - P

The call and put premiums have not been given.

Hence, we will ignore C & p in the equations above.

S = 104; K = 100

Hence, the profit per share of stock to an investor who bought the October maturity IBM call option = max (S - K, 0) = max (104 - 100, 0) = $ 4

and, the profit per share of stock to an investor who bought the October maturity IBM put option = max (K - S, 0) = max (100 - 104, 0) = $ 0