Question

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 $13.46 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 $183.76, 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.

Answer 1

Money call spread of PYPL

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

St = Stock price at expiry = $183.76

X1 = Bought call option strike = $200

X2 = Sold call option strike = $220

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

Net premium paid = 13.46 - 7

Net premium paid = $6.46

Profit of money call spread = max(183.76 - 200, 0) - max(183.76 - 220, 0) - 6.46

Profit of money call spread = max(-16.24, 0) - max(-36.24,0) - 6.46

Profit of money call spread = 0 - 0 - 6.46

Profit of money call spread = -$6.46

Profit of money call spread for one contract = -6.46 * 100

Profit of money call spread for one contract = -$646

Or a loss of $646

Enter answer: -646.00