Profits to Buyer of Call Option

Profits to Buyer of Call Option - Profits to Buyer of Call...

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Unformatted text preview: Profits to Buyer of Call Option 3,000 Profit from Strategy 2,500 2,000 Exercise Price = $70 Option Price = $6.125 1,500 1,000 500 0 Stock Price at Expiration (500) (1,000) 40 50 60 70 80 90 20-1 100 Profits to Seller of Call Option 1,000 Profit from Strategy Exercise Price = $70 Option Price = $6.125 500 0 (500) (1,000) (1,500) (2,000) Stock Price at Expiration (2,500) (3,000) 40 50 60 70 80 90 20-2 100 Profits to Buyer of Put Option 3,000 Profit from Strategy 2,500 2,000 Exercise Price = $70 Option Price = $2.25 1,500 1,000 500 0 Stock Price at Expiration (500) (1,000) 40 50 60 70 80 90 20-3 100 Profits to Seller of Put Option 1,000 Profit from Strategy 500 0 Exercise Price = $70 Option Price = $2.25 (500) (1,000) (1,500) (2,000) Stock Price at Expiration (2,500) (3,000) 40 50 60 70 80 90 20-4 100 Investing With Derivative Securities • Options Pricing Relationships – – A positive sign shows a positive impact of the factor on option price A negative sign shows a negative impact of the factor on option price Factor Call Option Option Stock price + 20-5 Put The Relationship Between Forward and Option Contracts Put-Call-Spot Parity • – – – – Suppose that at Date 0, an investor forms the following portfolio involving three securities related to Company WYZ: Buy a WYZ common stock at price of S0 Purchase a put option for P0, T to deliver WYZ stock at an exercise price of X on expiration date, T Sell a call option for C0, T to purchase WYZ stock at an exercise price of X on expiration 20-6 date, T Exhibit 20.16 20-7 • The Relationship Between Forward and Option The Implication of Put-Call-Spot Parity Contracts – – – The net investment required to acquire this portfolio is (S0 + P0,T – C0,T) The net positive at expiration date no matter at what level the stock price is would + Pthe same, X X be − C = S0 0 ,T 0 ,T T (1+ RFR) The result is a risk-free investment 20-8 ...
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Profits to Buyer of Call Option - Profits to Buyer of Call...

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