Question

QUESTION 14 You expect that the stock of GoPro, currently trading at $73 per share, will be volatile in the next three months, and the price will change significantly. However, you do not know the direction of the change. Thus, you decide to enter into a long straddle position using 3 month options, buying both a put and a call contract struck at $73. The premium on both options is $2.4 per share. If at maturity, GoPro is trading at $84 per share, what is your net profit on this position? Remember that each option contract is for 100 shares.

Answer 1

Calculation of Net Profit Grinen He Buys Bath a put and a Call option Stucks at $ 73 (Exercise Price) Premium Paid To Buy (Lang) Ception 3- Manth Put optian @ $2.4 per Share = $240 - 2) 3. Month Call ceptian @ $2.4 per Share = $ 240 Gremium paid to lomy oplian's - $480

At Maturity Stock price is $84 per Share After 3 Morth) so " Value of Call optian : (Stock price - Exercise price at maturity 1 at Maturity of option Value of Collaption : ($84 - $73. o) of Grain from Gercising Coll option . $ 1.100 ($ 11 x 100 Share )

2 of Value at Put aptism - Maturity Exercise price of put caption - Stock Price at Maturity $873 - $ 84, o so we do It should = 0 not Exercise Lapse put option at maturity so • Net Profit from Lang Straddle Position Profit ferom Crenissing cell option - 1.00 Put aptian Lapse at Maturity - Nil Premium Paid to buy Call & put caption = ($480) Contflaue) Net Prasit = $620 Set Profit from Position is $ 620 620