Answered

Discover answers to your most pressing questions at Westonci.ca, the ultimate Q&A platform that connects you with expert solutions. Experience the ease of finding accurate answers to your questions from a knowledgeable community of professionals. Get quick and reliable solutions to your questions from a community of experienced experts on our platform.

The market price of Northern Mills stock has been relatively volatile and you think this volatility will continue for a couple more months. Thus, you decide to purchase a two-month European call option on this stock with a strike price of $30 and an option price of $1.60. You also purchase a two-month European put option on the stock with a strike price of $30 and an option price of $.20. Contracts are on 100 shares. What will be your net profit or loss on these option positions if the stock price is $36 on the day the options expire

Sagot :

abiolataiwo2015

Answer:

$420

Explanation:

Calculation to determine What will be your net profit or loss

First step is to calculate Net Profit from call option Using this formula

Net Profit from call option = (Gain from Exercising Call Option - Option Premium paid) * Size of the Contract

Let plug in the formula

Net Profit from call option= (($36 - $30) - $1.60) × 100 Shares

Net Profit from call option= $440

Second step is to calculate Net Loss from put option

Using this formula

Net Loss from put option = (Option Premium paid) * Size of the Contract

Let plug in the formula

Net Loss from put option = $0.20 × 100 Share

Net Loss from put option = $20

Now let calculate the net profit using this formula

Net profit= Net Profit from Call Option - Net loss from Put Option

Let plug in the formula

Net profit= $440 - $20

Net profit= $420

Therefore What will be your net profit is $420

We hope this was helpful. Please come back whenever you need more information or answers to your queries. We hope this was helpful. Please come back whenever you need more information or answers to your queries. Thank you for trusting Westonci.ca. Don't forget to revisit us for more accurate and insightful answers.