In: Finance
4.
If you buy a call option of Amazon Inc. with an exercise price of $2000 for a premium of $210.
Draw payoff and profit of call option buyer and call option writer at expiration date graphically.
(use a ruler and draw it by hand if it is hard for you to do it on your computer)
Payoff of Call option buyer = max (S - K, 0)
Profit of the call option buyer = max (S - K, 0) - C
Payoff for the call option writer = - max (S - K, 0)
and Profit of the call option write = C - max (S - K, 0)
S = Stock price on expiration date, K = Strike price = $ 2,000; C = Call premium = $ 210
I have produced below the payoff and profit table. The graph follows the table.
Stock Price, S | Payoff of buyer | Profit of Buyer | Payoff of writer | Profit of Writer |
max (S - 2000, 0) | max (S - 2000, 0) - 210 | '-max (S - 2000, 0) | C - max (S - 2000, 0) | |
0 | 0 | -210 | 0 | 210 |
100 | 0 | -210 | 0 | 210 |
200 | 0 | -210 | 0 | 210 |
300 | 0 | -210 | 0 | 210 |
400 | 0 | -210 | 0 | 210 |
500 | 0 | -210 | 0 | 210 |
600 | 0 | -210 | 0 | 210 |
700 | 0 | -210 | 0 | 210 |
800 | 0 | -210 | 0 | 210 |
900 | 0 | -210 | 0 | 210 |
1000 | 0 | -210 | 0 | 210 |
1100 | 0 | -210 | 0 | 210 |
1200 | 0 | -210 | 0 | 210 |
1300 | 0 | -210 | 0 | 210 |
1400 | 0 | -210 | 0 | 210 |
1500 | 0 | -210 | 0 | 210 |
1600 | 0 | -210 | 0 | 210 |
1700 | 0 | -210 | 0 | 210 |
1800 | 0 | -210 | 0 | 210 |
1900 | 0 | -210 | 0 | 210 |
2000 | 0 | -210 | 0 | 210 |
2100 | 100 | -110 | -100 | 110 |
2200 | 200 | -10 | -200 | 10 |
2300 | 300 | 90 | -300 | -90 |
2400 | 400 | 190 | -400 | -190 |
2500 | 500 | 290 | -500 | -290 |
2600 | 600 | 390 | -600 | -390 |
2700 | 700 | 490 | -700 | -490 |
2800 | 800 | 590 | -800 | -590 |
2900 | 900 | 690 | -900 | -690 |
3000 | 1000 | 790 | -1000 | -790 |
3100 | 1100 | 890 | -1100 | -890 |
3200 | 1200 | 990 | -1200 | -990 |
3300 | 1300 | 1090 | -1300 | -1090 |
3400 | 1400 | 1190 | -1400 | -1190 |
3500 | 1500 | 1290 | -1500 | -1290 |
3600 | 1600 | 1390 | -1600 | -1390 |
3700 | 1700 | 1490 | -1700 | -1490 |
3800 | 1800 | 1590 | -1800 | -1590 |