Question

Suppose a financial manager buys call options on 50,000 barrels of oil with an exercise price of $83 per barrel. She simultaneously sells a put option on 50,000 barrels of oil with the same exercise price of $83 per barrel. Consider her gains and losses if oil prices are $75, $78, $83, $88, and $91. (Do not round intermediate calculations. Leave no cells blank - be certain to enter "0" wherever required. A negative answer should be indicated by a minus sign.)

  

Market price	$75	$78	$83	$88	$91
Payoffs per barrel	$	$	$	$	$

Answer 1

Buying call and selling put simultaneously on same strike price is creating synthetic future.

Therefore pay off for buy call + sell put will be equal to pay off for buying futures @ $83

Market prices	Profit / (Loss) per lot	Total Profit / (Loss)
75	(-8.00)	(-400,000)
78	(-5.00)	(-250,000)
83	-	-
88	5.00	250,000
91	8.00	400,000