Question

# You want to evaluate the financial flows that an options product can generate Available data are...

You want to evaluate the financial flows that an options product can generate

Available data are as follows: exercise price \$ 943.55 pesos per unit, estimated spot price at expiration \$ 945.20, if the cost of the unit premium is \$ 1.25 pesos and you plan to operate 800,000 units. indicate:

a) Financial flow in the purchase of a call (highlight profit or loss)

b) Financial flow in the purchase of a put (highlight profit or loss)

c) Financial flow in the sale of a call (highlight profit or loss)

d) Financial flow in the sale of a position (highlight profit or loss)

a) Total amount of premium paid =800000*1.25= \$1,000,000 pesos

Since the spot price is greater than the strike price, there is a profit on the call option

Profit payoff from the call =800,000*(945.20-943.55) =\$1,320,000 pesos

Total profit = 1320000-1000000=\$320000 pesos

b) Total amount of premium paid =800000*1.25 = \$ 1000000 pesos

Spot is higher than strike, hence pay option payoff is zero

Total loss = \$ 1000000 pesos

c) Total premium collected =800000*1.25 = \$1000000 pesos

Spot if greater than strike. Hence there is a loss on short call

Loss on short call = 800000*(945.20-943.55) =\$1320000 pesos

Total loss = 1320000-1000000 =\$320000 pesos

d) Total premium collected = 800000*1.25 =1000000

There is no payoff on short put since spot is greater than strike

Total profit =\$1000000 pesos

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