You write a put with a strike price of $45 on stock that you have shorted at $45
ID: 2778585 • Letter: Y
Question
You write a put with a strike price of $45 on stock that you have shorted at $45 (this is a “covered put”). What are the expiration date profits to this position for stock prices of $35, $40, $45, $50, and $55 if the put premium is $2.20? (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" sign in your response.)
Stock Price Short Profit Short Put Payoff Short Put Profit Net Profit $35.00 $ $ $ $ $40.00 $ $ $ $ $45.00 $ $ $ $ $50.00 $ $ $ $ $55.00 $ $ $ $Explanation / Answer
Put option also has two parties, one a buyer of a put option and another a seller of a Put option.
Intention / Transaction
Put
Buyer of an Option
Intends to sell an asset
Seller of an Option
Intends to buy an asset
Risk Profile :
Position / Profile
Profit
Loss
Buyer of a Put
Unlimited
Limited ( premium )
Seller of a Put
Limited ( premium )
Unlimited
Break even strike price=Put option strike price-Premium
=$45-$2.20
=$42.80
Profit Loss =B.E.P-Stock Price
If stock Price=$35
=$42.80-$35
=$7.8
If stock price=$40
=$42.80-$40
=$2.8
If stock price=$45
=$42.80-$45
=$2.2
If stock price=$50
=$42.80-$50
=-$7.2
If stock price=$55
=$42.80-$55
=-$12.2
Stock Price
Short Profit
Short Put Payoff
Short Put Profit
Net Profit
$35.00
0
0
7.8
5.6
$40.00
0
0
2.8
.6
$45.00
2.2
0
0
0
$50.00
0
-7.2
0
-9.4
$55.00
0
-12.2
0
-14.4
Intention / Transaction
Put
Buyer of an Option
Intends to sell an asset
Seller of an Option
Intends to buy an asset
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