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

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