Intuition, explanation and formula would be nice thank you. 1) You own a call op

Question

Intuition, explanation and formula would be nice thank you.

1) You own a call option on a stock and the strike price of the option is $30. The option has 3 weeks until expiration and the stock is currently priced at $35 per share. You paid $1 per put option and you bought 1 put option. What is the largest payout possible for this call option? Ignore the original cost of the option for the payment calculation.

2) Based on the information on the previous question, graph a net payoff diagram for one of the call options you purchased. Be sure to label clearly including the break-even point.

3) You sold a call option on a stock and the strike price of the option is $30. The option has 3 weeks until expiration and the stock is currently priced at $35 per share. You originally sold the call option for $3. What is the largest payout possible for this call option?

Explanation / Answer

(1) Largest Payout is strike price of Put option - Premium Paid on put option

= 35-1 = $34

(2) its easy just imagine price on expiry is Rs. 20 so now you go for buy from outside and sell it under optiob so you earn = 35-1-20= $14

(3) Lrgest payout possiblee in case of Selling call option = Premium Received i.e. $3

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