1. You buy a stock for $50 and simultaneously write a call with a strike price o
ID: 2815388 • Letter: 1
Question
1. You buy a stock for $50 and simultaneously write a call with a strike price of $51 and a premium of $0.50 per share. If the stock price falls to $48 per share, what is your per-share net profit? If you think net profit is negative, enter your answer using a number preceded by a minus sign. If you think net profit 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 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.
Explanation / Answer
1)
Per share net profit:
= Call premium received – Decrease in stock price
= $0.50-$2
= -$1.50
Hence, there is a loss of $1.50
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