Question

# Suppose you buy a stock, buy a put option with a strike price of \$80 on...

Suppose you buy a stock, buy a put option with a strike price of \$80 on the stock, and write a call option on the stock with a strike price of \$100. What is the total payoff (not profit) if the stock price at expiration is \$125?

A call option is an option of right to buy if price goes favorable that is price at expiry is greater than strike price.otherwise option will not be exercised.

A put option is an option of right to sell if price goes favorable that is price at expiry is less than strike price otherwise option will not be exercised.

 Option Stike price price at expiry Exercisable or not Payoff Put option 80 125 Not exercisable since price at expiry is greater than strike price (125>80) 0 Call option written off (you sold a call option) 100 125 The buyer of call option will exercise the option since price at epxiry is greter than strike price (125>100) 100-125=-25 Total payoff -25

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