Question

Options on XYZ Inc.

Expiration                             Strike              Call                 Put

September 25, 2020              60                    3.40                 1.20

September 25, 2020              65                    2.25                 2.56

September 25, 2020              70                    1.15                 3.67

Use the data for XYZ Inc. to calculate the payoff and the profit for investments in each of the following September 25, 2020 expiration options, assuming that the stock price on the expiration date is $ 63. SHOW YOUR WORK!!

1. Call option, X=60
2. Put option, X=65
3. Call option, X=65
4. Put option, X=70

Answer 1

a). Call option payoff = max(stock price - strike price, 0) = max(63-60,0) = 3

Loss = payoff - premium = 3-3.40 = -0.40

b). Put option payoff = max(strike price - stock price, 0) = (65-63) = 2

Loss = payoff - premium = 2 - 2.56 = 0.56

c). Call option payoff = max(stock price - strike price, 0) = max(63-65,0) = 0

Loss = payoff - premium = 0-2.25 = -2.25

d). Put option payoff = max(strike price - stock price, 0) = (70-63) = 7

Profit = payoff - premium = 7 - 3.67 = 3.33