Homework Answers
a) Since we do not expect the price to change much we will sell both the call and put option and earn premium to increase return, this is known as short straddle
| Position | Number of Shares |
| Buy Call | 0 |
| Sell Call | 200 |
| Buy Put | 0 |
| Sell Put | 200 |
b)
| Option | No of shares | Premium collected per share | Total Premium collected |
| Call | 200 | 0.85 | 170 |
| Put | 200 | 0.75 | 150 |
| 320 |
| Option | No of shares | Strike | Share Price | Exercised | Payoff |
| Call | 200 | 5 | 7 | Yes | -200 |
| Put | 200 | 5 | 7 | No | 0 |
| -200 |
profit = total premium collected - payoff = 320 - 200 = 120
c)
| Option | No of shares | Strike | Share Price | Exercised | Payoff |
| Call | 200 | 5 | 0 | No | 0 |
| Put | 200 | 5 | 0 | Yes | -400 |
| -400 |
| TOTAL Payoff | -400 |
| Premium collceted | 320 |
| loss | -80 |
d)
| Option | No of shares | Strike | Share Price | Exercised | Payoff |
| Call | 200 | 5 | 5 | No | 0 |
| Put | 200 | 5 | 5 | No | 0 |
| 0 |
| TOTAL Payoff | 0 |
| Premium collceted | 320 |
| profit | 320 |
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