A. calculate the payoff and profit at expiration for the february 190 calls, if you purchase the option at the stated price and at expiration the stock price is $195. b. calculate the payoff and profit at expiration for the february 195 puts, if you purchase the option at the stated price and at expiration the stock price is $195.

(a) The Net Payoff: 6.75+5 = - 1.75  (b)  Net payoff : 5

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Explanation:

Solution

Given that:

The call value goes higher when the underlying price increases and vice versa.

The premium value of put goes higher when underlying market decreases and vice versa.

The call  value = Spot price - strike price (minimum zero)

The put value  = Strike price - spot price (minimum zero

(1): Trade: Buy February Call  

Now

The Strike Price: $ 190

The Call Premium paid: $ 6.75

The Stock Price on Expiry: $ 195

Value of call on expiry: $ 5

The Net Payoff: 6.75+5 = - 1.75

(2). Trade: Buy February Put

The Strike Price: $195

Put Premium: $ 5.00

Stock Price on Expiry = $ 195

Value of Put on Expiry: 0

Net payoff : 5

answersituation analysis;

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