YOU WANT TO PROTECT YOUR INVESTMENT SO YOU BOUGHT A SROCK AT 100 AND THE STRIKE...

YOU WANT TO PROTECT YOUR INVESTMENT SO YOU BOUGHT A SROCK AT 100 AND THE STRIKE PRICE IS 100 DOLLAR YOU PAID 3 DOLLARS AS PREMIUM SHOW THE MAX LOSS MAX PROFIT, BREAK EVEN If price is now 95 what is your profit? AND PLOTT IT ON A DIAGRAM

Expert Solution

For Call option:

Maximum loss=premium paid =3$

Maximum profit=infinite (theoreticall) as share price can go an high value

--

if current price is 95; profit= max(95-100,0)-premium paid =0-3= -3 $ ( 3$ loss )

	Long Call 100 (Payoff)	Premium	Profit (payoff_+ premium)
0	0	-3	-3
5	0	-3	-3
10	0	-3	-3
15	0	-3	-3
20	0	-3	-3
25	0	-3	-3
30	0	-3	-3
35	0	-3	-3
40	0	-3	-3
45	0	-3	-3
50	0	-3	-3
55	0	-3	-3
60	0	-3	-3
65	0	-3	-3
70	0	-3	-3
75	0	-3	-3
80	0	-3	-3
85	0	-3	-3
90	0	-3	-3
95	0	-3	-3
100	0	-3	-3
105	5	-3	2
110	10	-3	7
115	15	-3	12
120	20	-3	17
125	25	-3	22
130	30	-3	27
135	35	-3	32
140	40	-3	37
145	45	-3	42
150	50	-3	47
155	55	-3	52
160	60	-3	57
165	65	-3	62
170	70	-3	67
175	75	-3	72
180	80	-3	77
185	85	-3	82
190	90	-3	87
195	95	-3	92
200	100	-3	97

---------------------------------------------------------------------------------------------------------

For put option

Maximum loss=premium paid =3$

Maximum profit=100-3=97$ (the share price can go till 0 value )

--

if current price is 95; profit= (100-95)-3 = 2 $

S	Long put 100 (Payoff) [=max(100-S,0) ]	Premium	Profit (payoff_+ premium)
0	100	-3	97
5	95	-3	92
10	90	-3	87
15	85	-3	82
20	80	-3	77
25	75	-3	72
30	70	-3	67
35	65	-3	62
40	60	-3	57
45	55	-3	52
50	50	-3	47
55	45	-3	42
60	40	-3	37
65	35	-3	32
70	30	-3	27
75	25	-3	22
80	20	-3	17
85	15	-3	12
90	10	-3	7
95	5	-3	2
100	0	-3	-3
105	0	-3	-3
110	0	-3	-3
115	0	-3	-3
120	0	-3	-3
125	0	-3	-3
130	0	-3	-3
135	0	-3	-3
140	0	-3	-3
145	0	-3	-3
150	0	-3	-3
155	0	-3	-3
160	0	-3	-3
165	0	-3	-3
170	0	-3	-3
175	0	-3	-3
180	0	-3	-3
185	0	-3	-3
190	0	-3	-3
195	0	-3	-3
200	0	-3	-3

jeff jeffy answered 3 years ago

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