Question

The following table lists prices of Alphabet options in December 2015 when Alphabet stock was selling for $470.

Expiration Date	Exercise Price			Call Price			Put Price
March 2016	$	440		$	43.66		$	15.10
		470			26.75			27.90
		475			14.70			46.40

Use the data in the table to calculate the payoff and the profits for investments in each of the following June maturity options, assuming that the stock price on the expiration date is $450. (Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places.)

	Payoff Profit a. Call option with exercise price of $440 b. Put option with exercise price of $440 c. Call option with exercise price of $470 d. Put option with exercise price of $470 e. Call option with exercise price of $500 f. Put option with exercise price of $500

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Answer 1

Call option Pay off and Profit can be calculated with following equations -

Put option Pay off and Profit can be calculated with following equations -

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

Note - In above question, There is typo error in table-1 Row-3 the exercise price should be $500 instead of $475 because in Table-2 (e) & (f) it asked payoff & profit for option with $500 exercise. Moreover, the price pattern of option also indicate it should be $500. I have provided solution considering it is $500 as it asked in table-2.

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.