1. You sell one IBM July 120 call contract for a premium of $3. At the expiratio

Question

1. You sell one IBM July 120 call contract for a premium of $3. At the expiration date, iBM stock sells for $123 per share. You will realize a _______ on the investment (assume the option contract is for $100 shares).

2. You purchase a put option contract on Apple with a strike price of $120. The put option cost you $300 and gives you the right to 100 shares. You hold the option until the expiration date, when Apple stock sells for $115 per share. What is your profit or loss? (assume the option contract is for 100 shares)

Explanation / Answer

1.We have sell call option , premium received $ 3×100= $300 E= $120, Co= $3, St= $123.

Call is exercises against us. Payoff = (123-120)100= $ 300

Profit = Premium received- payoff= 300-300= $0

2.we purchased a put option contract at E = $120, Po= 3×100=$300, now St = $115

Payoff = (120-115)100= $500

Profit= Payoff- premium paid= $ 500-$300= $200

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