Problem 5: You enter into the following trade. Write a put
option with a strike price of 30 Write a call option with a
strike price of 50 Both the call and put option are written on
the same underlying and have the same expiration date.
Homework Answers
1) Table showing pay off
| Price as at expiry | Profit/loss on Put option sold Strike price 30$ |
Profit/loss on call option sold Strike price 50$ |
Net premium received | Net profit or Loss |
| 20 | -10 | 3.75 | -6.25 | |
| 21 | -9 | 3.75 | -5.25 | |
| 22 | -8 | 3.75 | -4.25 | |
| 23 | -7 | 3.75 | -3.25 | |
| 24 | -6 | 3.75 | -2.25 | |
| 25 | -5 | 3.75 | -1.25 | |
| 26 | -4 | 3.75 | -0.25 | |
| 26.25 | -3.75 | 3.75 | 0 | |
| 27 | -3 | 3.75 | 0.75 | |
| 28 | -2 | 3.75 | 1.75 | |
| 29 | -1 | 3.75 | 2.75 | |
| 30 | 0 | 3.75 | 3.75 | |
| 31 | 3.75 | 3.75 | ||
| 32 | 3.75 | 3.75 | ||
| 33 | 3.75 | 3.75 | ||
| 34 | 3.75 | 3.75 | ||
| 35 | 3.75 | 3.75 | ||
| 36 | 3.75 | 3.75 | ||
| 37 | 3.75 | 3.75 | ||
| 38 | 3.75 | 3.75 | ||
| 39 | 3.75 | 3.75 | ||
| 40 | 3.75 | 3.75 | ||
| 41 | 3.75 | 3.75 | ||
| 42 | 3.75 | 3.75 | ||
| 43 | 3.75 | 3.75 | ||
| 44 | 3.75 | 3.75 | ||
| 45 | 3.75 | 3.75 | ||
| 46 | 3.75 | 3.75 | ||
| 47 | 3.75 | 3.75 | ||
| 48 | 3.75 | 3.75 | ||
| 49 | 3.75 | 3.75 | ||
| 50 | 0 | 3.75 | 3.75 | |
| 51 | -1 | 3.75 | 2.75 | |
| 52 | -2 | 3.75 | 1.75 | |
| 53 | -3 | 3.75 | 0.75 | |
| 53.75 | -3.75 | 3.75 | 0 | |
| 54 | -4 | 3.75 | -0.25 | |
| 55 | -5 | 3.75 | -1.25 | |
| 56 | -6 | 3.75 | -2.25 | |
| 57 | -7 | 3.75 | -3.25 | |
| 58 | -8 | 3.75 | -4.25 | |
| 59 | -9 | 3.75 | -5.25 | |
| 60 | -10 | 3.75 | -6.25 |
Profit diagram
2)
Thus as shown in table and diagram, break even for this strategy is
$26.25 and $53.75
Comment
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