You shorted a call option on Intuit stock with a strike price of $41. When you sold (wrote) the option, you received $7. The option will expire in exactly three months' time.
a. If the stock is trading at $61 in three months, what will your payoff be? What will your profit be? Round to nearest dollar
b. If the stock is trading at $35 in three months, what will your payoff be? What will your profit be? Round to nearest dollar
a). Payoff of Short Call = -Payoff of Long Call
= -[Max{Spot Price - Strike Price},0]
= -[Max{$61 - $41},0]
= -$20
Profit of short call = Payoff of short call + Premium Paid
= -$20 + $7 = -$13
b). Payoff of Short Call = -Payoff of Long Call
= -[Max{Spot Price - Strike Price},0]
= -[Max{$35 - $41},0]
= $0
Profit of short call = Payoff of short call + Premium Paid
= $0 + $7 = $7
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