Question 5 10 points Save Ans You buy one IBM July 90 call contract for a...

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Answer 1

Answer #1

long position in IBM July 90 call & paid a premium of = $4 per share

Total premium paid for call option =$400

The price of IBM on expiration date=$97

The pay off on call option = Spot price- Strike price*Quatinty

=97-90*100

=7*100=$700

Net inflow will be =4700-$400= $300

long position in IBM July 90 put & paid a premium of = $2 per share

Total premium paid for call option =$200

The price of IBM on expiration date=$97

The pay off on call option = only premium paid by the investor

i.e., $200

Because the put option will be OTM ( out of the money)

Hence the option will not be exercised by investor, hence the payoff ( loss) would be only

Net inflow will be =$300- $200

=$100 from both the positions

Answer 2

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