Annika has purchased put options on 1000 shares of Amazon stock with a striking price of $270 per share. The option premium was $6.00 per share
a. Compute Annika's profit or loss if the market value of Amazon's stock is $280 at expiration.
b. Compute Annika's profit or loss if the market value of Amazon's stock is $260 at expiration.
c. Compute Annika's profit or loss if the market value of Amazon's stock is $272 at expiration.
Answer:
a. The option will not be exercised because it would be better to sell the stock in the market. Annika loses the option premium of $6,000 although the stock is worth $10 more than the put's striking price, so she may have profits on the stock if she owns it.
b. Annika will buy the stock for $260 if she does not already own it, and sell it to seller of the put for $270 at a profit of $10,000. Subtracting the option premium of $6,000 her net profit is $4,000.
c. The option will not be exercised because it would be better to sell the stock at the market price. Annika loses the option premium of $6,000 although she may have a profit on the stock if she owns it.
You might also like to view...
Of the following, which is NOT a part of J-Curve adjustment path?
A) the currency contract period B) the exchange rate pass-through period C) the quantity adjustment period D) Each of the above is part of the J-Curve adjustment path.
The typical arbitration hearing
a. has the same rules of evidence as a court proceeding. b. is more formal than the grievance procedure. c. moves more slowly than a normal court case. d. takes place a few days after an appeal.