Session 12R - COMM308 AA Fall 2012

Use what the question wants multiple options case

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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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