1. You purchase one IBM July 120 call contract for a premium of $5. You hold the option until the expiration date when IBM stock is at $123 per share on the market. How much profit or loss you will realize on the investment?
2. You write one IBM July 120 call contract for a premium of $10. You hold the option until the expiration date when IBM stock is at $115 per share. How much profit or loss you will realize on the investment?
3. Suppose you purchase one Texas Instruments August 75 call contract quoted at $8.50 and write one Texas Instruments August 80 call contract quoted at $6. If, at expiration, the price of a share of Texas Instruments stock is $79, your profit would be?
4. You established a straddle strategy for Tesla aiming for expiration date of this June. Tesla June 250 call contract has a premium of $18 and Tesla June 250 put contract has a premium of $17. Current stock price of Tesla is at 252. If Tesla’s stock price decreased to $200 by June, how much profit or loss you will realize on the investment? At what price range by expiration date will you lose money on your straddle strategy?
Please show work. Thanks. Any help appreciated.
Answer :
1
Loss of $ 200
Working notes for the above answer
=Contract Price + premium
=120+5
=125
Loss= Market price on expiration date- purchase price
=125-123
=2
=2*100
=200 loss
2
Profit of $ 500
Working notes for the above answer
= Neglecting commisions, it is. 500 profit,
you get 100 * $10 or $100 for the sale of the call option and unless you already have the shares or are willing to hold a short position, you’ll have to buy 100 shares at $115 per share for $129*00 in order to meet your contractual obligation to sell 100 shares at $120 for $12,000. Therefore it’s
100 – $11500 + $12,000
= $500
3
Answer: your profit would be $ 1.5
Working notes for the above answer is as under
Profit= (79-75)-8.5+6
=4-8.5+6
=1.5
=$1.5
