You buy a call with a strike price of $85 on stock that you have shorted at $85
ID: 2778586 • Letter: Y
Question
You buy a call with a strike price of $85 on stock that you have shorted at $85 (this is a “protective call”). What are the expiration date profits to this position for stock prices of $75, $80, $85, $90, and $95 if the call premium is $6.20? (Negative amounts should be indicated by a minus sign. Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your Call profit and Net profit answers to 2 decimal places. Omit the "$" sign in your response.)
Stock Price Short Profit Call Payoff Call Profit Net Profit $75 $ $ $ $ $80 $ $ $ $ $85 $ $ $ $ $90 $ $ $ $ $95 $ $ $ $Explanation / Answer
Calculation of Net Profits:
Stock Price
Short Profit
Call Payoff
Call Profit
Net Profit
A
B
C = B-6.20
A+C
$75
$ 10.00
$ -
$ (6.20)
$ 3.80
(85-75)
(0-6.20)
$80
$ 5.00
$ -
$ (6.20)
$ (1.20)
(85-80)
(0-6.20)
$85
$ -
$ -
$ (6.20)
$ (6.20)
(85-85)
(0-6.20)
$90
$ (5.00)
$ 5.00
$ (1.20)
$ (6.20)
(85-90)
(90-85)
(5-6.20)
$95
$ (10.00)
$ 10.00
$ 3.80
$ (6.20)
(85-95)
(95-85)
(10-6.20)
Calculation of Net Profits:
Stock Price
Short Profit
Call Payoff
Call Profit
Net Profit
A
B
C = B-6.20
A+C
$75
$ 10.00
$ -
$ (6.20)
$ 3.80
(85-75)
(0-6.20)
$80
$ 5.00
$ -
$ (6.20)
$ (1.20)
(85-80)
(0-6.20)
$85
$ -
$ -
$ (6.20)
$ (6.20)
(85-85)
(0-6.20)
$90
$ (5.00)
$ 5.00
$ (1.20)
$ (6.20)
(85-90)
(90-85)
(5-6.20)
$95
$ (10.00)
$ 10.00
$ 3.80
$ (6.20)
(85-95)
(95-85)
(10-6.20)
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