The market price of ZYX stock has been volatile and you expect that volatility t

Question

The market price of ZYX stock has been volatile and you expect that volatility to continue for a few weeks based on recent news. Due to this belief you decide to purchase calls and puts to manage your exposure. You purchase a one-month call option with a strike price of $25 and an option price of $1.30. You also purchase a one-month put option with a strike price of $25 and an option price of $0.50. What will be your total profit or loss on these option positions if the stock price is $24.60 on the day the options expire?

Explain your answer please

Explanation / Answer

We wont exercise call option as the price is 24.60 when call option expires We will exercise put option and will purchase share from the market at 24.60 and will sell it for 25. Thus there will be gain of $.40 Cost of Purchasing 2 options(1 call and 1 put)(1.30+.50)                               1.80 Net loss = .40 -1.80 = -1.40 I think in question it would be 100 options thus making loss of 140 (1.40*100) or 1 option contains 100 shares. Thus correct answer is $-140

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