Due Monday 11/20/2017 Finance 421 (Towner) Homework 6 (c) Assuming AAPL\'s share

Question

Due Monday 11/20/2017 Finance 421 (Towner) Homework 6 (c) Assuming AAPL's share price decreases by 10% between now and December 21st, compute the payoff, profit, and return for each of the following positions: (i) A long position in 100 call options, bought at $26.50 per call. (i) A long position in 100 put options, bought at S13.30 per put. As a reminder, the payoff from an options position is the value of the option at expiration (ignoring the premium paid), the profit is the payoff minus the premium, and the return equals the profit divided by the initial premium Position Long 100 call options Long 100 put options Payoff Proft Return

Explanation / Answer

Long 100 call option payoff = 0 since it is less than strike
Profit = -26.50
Return = -100% since all the money invested is being lost

Long 100 put option   payoff = 10 since it is less than strike
Profit = -16.50
Return = -16.50/26.5=-62.26%

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