Question

3. Suppose you buy a call and put option that has the same strike price of $75 and same maturity. Call costs $5 and put costs $4. Graph the profits and losses at expiration for different stock prices? (You need to draw call and put in the same graph) If the stock price at maturity is $80, what is your profit or loss?

Answer 1

Please find below the graph for each of the options

The table for the data for this graph is given below

Price of Stock	Put Option Profit	Call Option Profit
45	26	-5
50	21	-5
55	16	-5
60	11	-5
65	6	-5
70	1	-5
75	-4	-5
80	-4	0
85	-4	5
90	-4	10
95	-4	15
100	-4	20
105	-4	25

As can be seen, if the stock price is 80, we lose -4 on the put option and there is no profit/loss from the call option. So overall loss of 4$ is observed at the stock price of $80