4. Draw the PROFIT graphs for the following: Buy 1 100 call for $5 Sell 2...

4. Draw the PROFIT graphs for the following:

Buy 1 100 call for $5

Sell 2 50 calls for $2

Buy 3 150 puts for $20

Sell 5 40 puts for $4

Expert Solution

The PROFIT graphs of all 4 positions are attached herewith :

for better understading and practical knowledger one must understand that in case of buying of options be it call or put the loss can be limited to the price you paid i.e. in case of buy 1 call of 100 for $5 loss is limited to $5 where as profit is unlimited on the other side in case of sell(short sell) of call or put the loss can be unlimited where as profit is limited to the premium received which is the selling price for e.g. in the above case for sell 2 50 call at @ $2 the maximum profit can be $2 whereas loss can be unlimited...

The graphs are given with 1 lot for easy understanding of the student and with that the profit or loss can be calculated and understood very easily by multiplying with the number of calls or puts bought or sold...

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jeff jeffy answered 2 years ago

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