Long strip is an option strategy in which investor long one call option and long two put option having same strike price and maturity.
Profit of call option = Max(Stock price on expiry - strike price,0) - Call premium
Profit of put option = Max(Strike price - Stock price on expiry,0) - Put premium
Thus, Profit/Loss of Long strip would be:
Profit/Loss on Long strip =
[Max(Stock price on expiry - strike price,0) - Call premium]
+
2*[Max(Strike price - Stock price on expiry,0) - Put premium]
Putting the values to find Long strip Profit if the stock price on expiration is at $60 and using June Call and Put.
= [Max(60-45,0)-8.41]+2*[max(45-60,0)-2.09]
= [15-8.41]+2*[0-2.09]
= 6.59-4.18
= $2.41
Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.
Calls Puts Strike June March June 45 March $6.84 $3.82 $8.41 $1.18 $2.09 50 $5.58 $3.08...
The following prices are available for call and put options on a stock priced at $50. The risk-free rate is 6 percent and the volatility is 0.35. The March options have 90 days remaining and the June options have 180 days remaining. The Black-Scholes model was used to obtain the prices. Calls Puts Strike March June March June 45 6.84 8.41 1.18 2.09 50 3.82 5.58 3.08 4.13 55 1.89 3.54 6.08 6.93 Use this information to answer questions 1...
1. Consider a call option selling for $ 4 in which the exercise price is $50. A) Determine the value at expiration and the profit for a buyer under the following outcomes: i. The price of the underlying at expiration is $55 ii. The price of the underlying at expiration is $51 iii. The price of the underlying at expiration is $48 B) Determine the value at expiration and the profit for a seller under the following outcomes: i. The...