Question

which is the best trade today if AAPL stock closes at $230/share in 1-month? Show the...

which is the best trade today if AAPL stock closes at $230/share in 1-month? Show the profit/loss of each choice. Assume there are no transaction costs and ignore margins in case of shorting (selling) options.

a. Buy 100 shares of AAPL stock at $225/share and sell in one month

b. Buy 1 call option at 235 strike expiring in 1-month for 1.50

c. Sell 1 call option at 235 strike expiring in 1-month for 1.50

d. Buy 1 put option at 235 strike expiring in 1-month for 10

e. Sell 1 put option at 235 strike expiring in 1-month for 10

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Answer #1

a.profit = (230-225)*100 = $500

b Call option buyer gets the right to buy share at the exercise price after paying premium

Option holder will not exercise since the market price is less than strike price

Profit/Loss = -$1.50

c.Option seller receives the premium

Option holder will not exercise since the market price is less than strike price

Profit/Loss = $1.50

d.Put Option buyer gets the right to sell the share at strike price

Option holder will exercise since strike price is higher than the market price

Profit/loss = (235-230)-10

= -$5

e. Option seller receives the premium

Option holder will exercise since strike price is higher than the market price

Profit/Loss = (230-235) + 10

= $5

Hence, the best trade is a

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