1. You buy a stock for $40 and simultaneously buy a put with a $40 strike price
ID: 2815390 • Letter: 1
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 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.
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 written call 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
1)
Payoff:
= Payoff from call option + Payoff from put option
= ($40+$1-$45)+(-$1)
= -$5
Hence, payoff from this position is = -$5.
2) Per share payoff is -$5
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