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Unformatted text preview: ns case:
different options
Now assume you have another call
option as well: a call option on the
same stock with strike price of 60$ so
overall: You own: ◦ One Put option with Exercise price 32$ ◦ One share ◦ One call option with Exercise price 60$ Step 1: Identify your positions You own: ◦ One Put option with Exercise price 32$ ◦ One share ◦ One call option with Exercise price 60$ Step 2: Identify the exercise price ◦ One Put option with Exercise price 32$ ◦ One call option with Exercise price 60$ Step3a: Payoff K=32$ for Put option with Exercise price of Payoff = max{ K − ST ,0} Stock Price (St) 1$ 10 32 40 50 60 100 110 Put Payoff 31 22 0 0 0 0 0 1$ 10 32 40 50 60 100 110 50 60 100 110 Stock Price (St) Step 3b: Payoff
Share Payoff for one share
1
10 32 40 0 Payoff for Call option with
Exercise price of K=60$
Step3c: Payoff = max{ S1 − $60,0} Stock Price (St) 1$ 10 32 40 50 60 100 110 Call Payoff 0 0 0 0 0 0 40 50 Step 4: Add up the payoffs(profits)
Stock Price (St) 1$ 10 32 40 50 60 100 110 Put Payoff 31 22 0 0 0 0 0 Share Payoff 1 10 32 40 50 60 100 110 Call Payoff 0 0 0 0 0 0 40 Total Payoff 32 32 32 40 50 60 140 160 0
50 Total Payoff
12
10
8
T ot al Payoff 6
4
2
0
0 2 4 6
St ock Price 8 10 12 Multiple options case: holding
more than one option The payoff (profit) is multiplied by the
number of options you hold. Assume instead of holding one call option with Exercise
price 60$, you hold 1000 call options with exercise price of
60$ Step3c: Payoff for Call op...
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 Fall '12
 KavehMoradi

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