In: Economics
Read the following excerpt and draw a profit diagram based on the option positions. Show all the critical points on the diagram. For example, the intercepts on axes, maximum profit or maximum loss.
Shares of a gold producer rose 1.5% today to yet another all-time high of $116.43. We observed activity in the June 2012 contract by one investor who initiated an option strategy on the stock. It appears the trader purchased 13,265 calls at the June $125 strike for an average premium of $5.95 each, against the sale of the same number of calls at the higher June $150 strike for $2.10 apiece…
Please provide formula and calculation step thanks
This is how we calculate the payoffs.
Formula | IF(Price on expiry<=125,-13265*5.95,-13265*5.95+(Price on expiry-125)*13265) | IF(Price on expiry<=150,+13265*2.10,+13265*2.10-(Price on expiry-150)*13265) | |
A | B | A+B | |
Price on expiry | Payoff from call bought | Payoff from call sold | Total Payoff |
116.43 | -78926.75 | 27856.5 | -51070.3 |
120 | -78926.75 | 27856.5 | -51070.3 |
121 | -78926.75 | 27856.5 | -51070.3 |
122 | -78926.75 | 27856.5 | -51070.3 |
123 | -78926.75 | 27856.5 | -51070.3 |
124 | -78926.75 | 27856.5 | -51070.3 |
125 | -78926.75 | 27856.5 | -51070.3 |
126 | -65661.75 | 27856.5 | -37805.3 |
127 | -52396.75 | 27856.5 | -24540.3 |
128 | -39131.75 | 27856.5 | -11275.3 |
129 | -25866.75 | 27856.5 | 1989.75 |
130 | -12601.75 | 27856.5 | 15254.75 |
131 | 663.25 | 27856.5 | 28519.75 |
132 | 13928.25 | 27856.5 | 41784.75 |
133 | 27193.25 | 27856.5 | 55049.75 |
134 | 40458.25 | 27856.5 | 68314.75 |
135 | 53723.25 | 27856.5 | 81579.75 |
136 | 66988.25 | 27856.5 | 94844.75 |
137 | 80253.25 | 27856.5 | 108109.8 |
138 | 93518.25 | 27856.5 | 121374.8 |
139 | 106783.25 | 27856.5 | 134639.8 |
140 | 120048.25 | 27856.5 | 147904.8 |
141 | 133313.25 | 27856.5 | 161169.8 |
142 | 146578.25 | 27856.5 | 174434.8 |
143 | 159843.25 | 27856.5 | 187699.8 |
144 | 173108.25 | 27856.5 | 200964.8 |
145 | 186373.25 | 27856.5 | 214229.8 |
146 | 199638.25 | 27856.5 | 227494.8 |
147 | 212903.25 | 27856.5 | 240759.8 |
148 | 226168.25 | 27856.5 | 254024.8 |
149 | 239433.25 | 27856.5 | 267289.8 |
150 | 252698.25 | 27856.5 | 280554.8 |
151 | 265963.25 | 14591.5 | 280554.8 |
152 | 279228.25 | 1326.5 | 280554.8 |
153 | 292493.25 | -11938.5 | 280554.8 |
154 | 305758.25 | -25203.5 | 280554.8 |
155 | 319023.25 | -38468.5 | 280554.8 |
156 | 332288.25 | -51733.5 | 280554.8 |
157 | 345553.25 | -64998.5 | 280554.8 |
158 | 358818.25 | -78263.5 | 280554.8 |
159 | 372083.25 | -91528.5 | 280554.8 |
160 | 385348.25 | -104793.5 | 280554.8 |
161 | 398613.25 | -118058.5 | 280554.8 |
162 | 411878.25 | -131323.5 | 280554.8 |
163 | 425143.25 | -144588.5 | 280554.8 |
164 | 438408.25 | -157853.5 | 280554.8 |
165 | 451673.25 | -171118.5 | 280554.8 |
166 | 464938.25 | -184383.5 | 280554.8 |
167 | 478203.25 | -197648.5 | 280554.8 |
168 | 491468.25 | -210913.5 | 280554.8 |
169 | 504733.25 | -224178.5 | 280554.8 |
170 | 517998.25 | -237443.5 | 280554.8 |
And we can show the payoff as per the following graph