Question

(a) On 24 March 2020 an ANZ share was trading at $14.60 in ASX. The premium of Calls option with a strike price (exercise price) of $16.00 with an expiry date on the month of your next birthday was $1.00 per share. Draw the line curve of return (Profit/Loss) from the investment in this option against share price varying from $0 to $30. (Draw the price per share on X-axis from $0 to $30 and Profit/Loss in Y-axis. Must use Excel or similar software for the plot.)                        

(b) If you had $2,000 to invest, how much profit would you make if the price jumped to $26.00 per share of ANZ bank. Note that you have to pay a total brokerage fee of $19, options are traded in bundles of 100 shares in ASX, and you cannot overspend. (You may not be able to spend some amount of money if it is too little for a bundle of shares.)


Question 2
(a) On 26 March 2020 a Woolworths (WOW) share was trading at $36.75 in ASX. The premium for Puts option with a strike price (exercise price) of $35.00 with an expiry date on the month of your next birthday was $2.00 per share. Draw the line curve of return (Profit/Loss) from the investment in this option against share price varying from $0 to $40. (Draw the price per share on X-axis from $0 to $40 and Profit/Loss in Y-axis. Must use Excel or similar software for the plot.)

(b) If you had $2,000 to invest, how much profit would you make if the price fell to $16.00 per share of WOW. Note that you have to pay a total brokerage fee of $19, options are traded in bundles of 100 shares in ASX, and you cannot overspend. (You may not be able to spend some amount of money if it is too little for a bundle of shares.)

Answer 1

Question 1)

Current Spot Price S=$14.60

Strike Price X=16

Call option price C=$1

So Breakeven Price P=X+C=16+1=17

So Profit = max(0, (Price Per share - X)) - C =max(0, (Price Per share -16)) - 1

Price of share	Price of share - 16	max(0,(Price of share - 17))	Profit
0	-16	0	-1
2	-14	0	-1
4	-12	0	-1
6	-10	0	-1
8	-8	0	-1
10	-6	0	-1
12	-4	0	-1
14	-2	0	-1
16	0	0	-1
18	2	2	1
20	4	4	3
22	6	6	5
24	8	8	7
26	10	10	9
28	12	12	11
30	14	14	13

B)

Investment amount =$2000

1 Lot = 100 share

1 Lot of call option premium =100*1=$100

So total Lot =2000/100=20 Lots

So Profit per share at $26 from graph=$9

So Gross Profit for 20 Lots = 9*100*20=$18000

Net Profit = Gross Profit - Brokerage charge =18000-19=$17981