Question

Suppose a financial manager buys call options on 11,000 barrels of oil with an exercise price of $102 per barrel. She simultaneously sells a put option on 11,000 barrels of oil with the same exercise price of $102 per barrel. What are her payoffs per barrel if oil prices are $94, $99, $102, $105, and $110? (Leave no cells blank - be certain to enter "0" wherever required. A negative answer should be indicated by a minus sign.)

Answer 1

Call option is the right to buy share at a specified price in future. Put Option is the right to sell share at a specified price in future.

Oil Price	Situation	Net Payoff
94	Call buyer will not exercise, Put buyer will exercise	(94-102)*11,000 = -88,000
99	Call buyer will not exercise, Put buyer will exercise	(99-102)*11,000 = -33,000
102	Call buyer indifferent, put buyer indifferent	0
105	Call Buyer will exercise, put buyer will not exercise	(105-102)*11,000 = 33,000
110	Call Buyer will exercise, put buyer will not exercise	(110-102)*11,000 = 88,000