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You have been following stocks of PayPal (PYPL) and feel somewhat bullish in the short term....

You have been following stocks of PayPal (PYPL) and feel somewhat bullish in the short term. You decided to trade this stock using options, specifically using a Money call spread. You bought one of the $200 PYPL call options contract with a premium of $12.82 and sold one of the $220 call options contract with a premium of $7. You kept this position until the expiration date when PayPal stock sells for $223.96, at that point you have a profit of $_____________ from this transaction. Recall that each contract includes 100 shares.  Enter a negative number for losses. Enter your answer in the box below. Round your answer to two decimals.

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Expert Solution

Profit of money call spread = max(St - X1, 0) - max(St - X2, 0) - Premium paid

St = Stock price at expiry = $223.96

X1 = Bought call option strike = $200

X2 = Sold call option strike = $220

Premium paid = Bought call option premium - Sold call option premium

Premium paid = 12.82 - 7

Premium paid = $5.82

Profit of money call spread = max(223.96 - 200, 0) - max(223.96 - 220, 0) - 5.82

Profit of money call spread = max(23.96, 0) - max(3.96,0) - 5.82

Profit of money call spread = 23.96 - 3.96 - 5.82

Profit of money call spread = $14.18

Profit of money call spread for one contract = 14.18 * 100

Profit of money call spread for one contract = $1,418

jeff jeffy answered 2 years ago
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