Question

You sold fifty put contracts (1 contract = 100 shares) on ABC stock at an option...

You sold fifty put contracts (1 contract = 100 shares) on ABC stock at an option premium of $0.80. The options have an exercise price of $30. The options were exercised today when the stock price was $28.75 a share. What is your net profit or loss on this investment assuming that you closed out your positions at a stock price of $28.75? Ignore transaction costs and taxes

As you were not sure if the price of ABC stock would rise or fall in price, you also bought a certain number of call option contracts (1 contract = 100 shares) at a premium of $0.65 and the same exercise price. How many contracts would you have had to buy to ensure that you break-even? (Round up number of contracts to a whole number)

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Payoff from Put option = Max [ (Exercise price * stock price ) ,0 ]

Profit = Payoff - option premium

The stock price is less than the exercise price hence the put is in money .

Profit = ( 30 - 28.75 ) * 50*100 - 0.8*100*50 =-2250

There is a loss of $2250

Total option premium recieved on put option = 0.8 *50*100 =4000

To breakeven we have to buy call option and pay premium equal to amount recieved in put option

= 4000 / 0.65 = 6153.85

No of contracts = 6153.85 / 100 = 61.53 contracts

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
You sold a put contract on EDF stock at an option price of $.50. The option...
You sold a put contract on EDF stock at an option price of $.50. The option had an exercise price of $21. The option was exercised. Today, EDF stock is selling for $20 a share. What is your total profit or loss on all of your transactions related to EDF stock assuming that you close out your positions in this stock today? Ignore transaction costs and taxes.
The price of a stock is $75. A trader sells 6 put option contracts (each contract...
The price of a stock is $75. A trader sells 6 put option contracts (each contract of 100) on the stock with a strike price of $78 when the option price is $5. The options are exercised when the stock price is $74. What is the trader’s net profit or loss? Solve in following 4 steps. a) Option profit ? b) Trader’s gain per option ? c) Total options sold ? d) Trader’s total gain ?
You establish a protective put position on ABC stock today by buying 100 shares of ABC...
You establish a protective put position on ABC stock today by buying 100 shares of ABC stock at $30 per share and buying a 9-month put option contract on the same stock. Each put option has a strike price of $18 and a premium of $0.50. At the end of 9 months, compute the profit from the position if ABC's stock price is $40.
The price of a stock (S0) is $75. A trader sells 6 (N) put option contracts...
The price of a stock (S0) is $75. A trader sells 6 (N) put option contracts (each contract of 100) on the stock with a strike price (K) of $78 when the option price (c) is $5. The options are exercised when the stock price (S1) is $74. What is the trader’s net profit or loss? Solve in following 4 steps. a) Option profit ? b) Trader’s gain per option ? c) Total options sold ? d) Trader’s total gain...
Assume you just bought 100 call contracts on shares of Company A. The options can be...
Assume you just bought 100 call contracts on shares of Company A. The options can be exercised in one year’s time at the strike price of $30. You paid $0.50 per option. The shares of the company are currently selling at $24 per share. If the company's share price rises to $32 in one year’s time, what will be your net gain from the call options?
You just bought five July 2020 call option contracts selling at $2.50 on Coca Cola stock...
You just bought five July 2020 call option contracts selling at $2.50 on Coca Cola stock (KO).  The option has a strike price of $45.00 and the stock is selling at $46.50 per share.   You are very interested in making money, but you do not wish to purchase any shares of Coke common stock. How much of the $2.50 option price is exercise value and how much is premium? Exercise Value                            ______ Time Value Premium                  ______ How much did you pay for your investment...
You bought one of the $100 Apple call option contracts with a premium of $4.41. You...
You bought one of the $100 Apple call option contracts with a premium of $4.41. You kept your position until the expiration date, when Apple stock sells for $95, at that point you have a profit of $_____________ from this transaction. Recall that each contract includes 100 shares.  Enter a negative number for losses. Enter your answer in the box below. Round your answer to two decimals.
You buy 300 shares of ABC stock at $53 per share. At the same time, you...
You buy 300 shares of ABC stock at $53 per share. At the same time, you write 300 call options on ABC stock with exercise price equal to $51 and call premium $6.92. Calculate your profit if ABC stock price at the expiration of the option is $48.06 per share. A. $594 B. -$594 C. -$1,482 D. $1,482 E. $692 You buy 320 call options with exercise price of $72 and call premium of $6.50. You write 640 call options...
An expiring put option will be exercised and the stock will be sold if the stock...
An expiring put option will be exercised and the stock will be sold if the stock price is below the exercise price. A stop-loss order causes a stock sale when the price falls below some limit. Compare and contrast the strategy of buying a put option to the strategy of issuing a stop loss order. (Hint: assume you own 100 shares of stock. Consider the payoff to each strategy for different prices. Don't forget the cost of implementing the strategy.)
A put option on 100 shares of Generous Dynamics stock has an exercise price $50.00 per...
A put option on 100 shares of Generous Dynamics stock has an exercise price $50.00 per share. GD declares 2 for 1 stock split. What happens to the exercise price and the number of shares underlying the option? The answer is: Number of shares increases to 200 and the exercise price is reduced to $25.00 Can someone explain why that is the answer?
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT