Question

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)

Answer 1

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