Question

Assume that you adopted a strategy with 2 long options written on a stock: one long put with K=15TL bought for 2Tl, and one long call with K=18TL bought for 3TL. What are the profits/losses from this strategy if the closing price of the stock at expiration date is 10TL? 16TL? 25TL?

a-(3, -3, 4)

b-(0, -5, 2)

c-(0. -2, 3)

d-(3, -5, 4)

Answer 1

Iinitial Investment = 2 + 3 = 5

Profit = Payoff - initial investmen

Call option will give payoff when the stock price is higher than the exercise price

put option will give payoff when the stock price is lower than exercise price

Stock Price	Call Option Lapsed/ Exercised	Payoff from call option	Put Option Lapsed/ Exercised	Payoff from put option	Total Payoff	Initial Investment	Profit
10	Lapsed	0	Exercised	5	5	5	0
16	Exercised	0	Exercised	0	0	5	-5
25	Exercised	7	Lapsed	0	7	5	2

The ans is b ( 0 , -5,2)