4. If you buy a call option of Amazon Inc. with an exercise price of $2000...

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)

Expert Solution

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

jeff jeffy answered 1 month ago

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