Both a call and a put currently are traded on stock XYZ; both have strike prices

Question

Both a call and a put currently are traded on stock XYZ; both have strike prices of $65 and expirations of 6 months. a. What will be the profit to an investor who buys the call for $5 in the following scenarios for stock prices in 6 months? (a) $40; (b) $45; (c) $50; (d) $55; (e) $60. (Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place. Omit the "$" sign in your response.) Stock Price Profit a. $ 40 $ b. $ 45 $ c. $ 50 $ d. $ 55 $ e. $ 60 $ b. What will be the profit to an investor who buys the put for $7 in the following scenarios for stock prices in 6 months? (a) $40; (b) $45; (c) $50; (d) $55; (e) $60. (Negative amounts should be indicated by a minus sign. Round your answers to 1 decimal place. Omit the "$" sign in your response.) Stock Price Profit a. $ 40 $ b. $ 45 $ c. $ 50 $ d. $ 55 $ e. $ 60 $

Explanation / Answer

a calculation of profit on call a call option will be exercised if the stock price exceeds the strike price strike price stock price in 6 months premium paid exercised / laps profit on exercise of call ( strike piece - stock price ) profit ( profit on exercise - premium paid ) 65 40 5 laps 0 -5 65 45 5 laps 0 -5 65 50 5 laps 0 -5 65 55 5 laps 0 -5 65 60 5 laps 0 -5 total profit / loss -25 since the stock price is less than the strike price , the investors will not exercise the call and will buy the stock in the market for the less amount b calculation of profit on put a put option will be exercised if the stock price less then the strike price in 6 months strike price stock price in 6 months premium paid exercised / laps profit on exercise of put ( strike price - stock price ) profit ( profit on exercise - premium paid ) 65 40 7 exercise 25 18 65 45 7 exercise 20 13 65 50 7 exercise 15 8 65 55 7 exercise 10 3 65 60 7 exercise 5 -2 total profit / loss 40 since the stock price is less than the strike price , the investors will exercise the put

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