1. You buy a stock for $40 and simultaneously buy a put with a $40 strike price

Question

1. You buy a stock for $40 and simultaneously buy a put with a $40 strike price and a $1.00 premium and write a call with a $40 strike price and a $1.00 premium. What is your per-share net premium? If you think the net premium is negative, enter your answer using a number preceded by a minus sign. If you think the net premium is positive, enter your answer as a number.

2. You buy a stock for $40 and simultaneously buy a put with a $40 strike price and a $1.00 premium and write a call with a $40 strike price and a $1.00 premium. What is your per-share payoff from the stock if the share price increases to $45? If you think the payoff is negative, enter your answer using a number preceded by a minus sign. If you think the payoff is positive, enter your answer as a number.

Explanation / Answer

Solution :-2

The Share buy at $40

The premium of Put option is $1

The Premium of the Call option is $1

Now when the Price increases to $45

The Amount received after selling the stock = 45

and here the price is more than the strike price so we accept a call option

And then buy the share at $40 and sell it at $45 and the net amount received from it is $5

Now the total amount received at the time of selling the share = 45 + 5 = 50

and the amount paid at the time of buying share and call and put options = 40 + 1 + 1 = 42

Solution 1 :-

premium for put option = $1

premium for call option = $1

The per share net premium = 1 +1 = $2

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