Question

Using the table and information below to calculate the following: The value of the stock is currently $87, and expiration is Jan 16, Feb 16, and March 16. Briefly discuss your results.

Strike	Jan call	Feb call	March call	Jan put	Feb put	March put
80	4.0	5.5	7.1	1.8	1.9	3.0
85	3.2	4.3	6.0	2.3	3.5	4.0
90	2.6	3.8	4.4	3.2	4.0	5.8
95	1.9	2.1	3.2	4.5	5.2	6.9

1. Complete the profit/loss tables for 80, 85, 90, 95 at the end of the period.
2. Calculate the Long Straddle (buy long call and long put) using March 90 options

3. Calculate the Short Strip using the 95 March options.

4. Calculate the net value of a protective put position at an expiration stock price of 50. Use a strike price of 80.
5. Calculate the net value of a covered call position at an expiration stock price of 100. Use a strike price of 95.

Answer 1

Long Straddle = Buy a Call option and Buy Put Option

	Price = 80
	Long call (K=90)	Long Put (K=90)
Premium Paid	4.40	5.80
Option value at expiry	worthless	10.00
Total Premium Paid	10.20
Profit/(Loss)	(0.20)

	Price = 85
	Long call (K=90)	Long Put (K=90)
Premium Paid	4.40	5.80
Option value at expiry	worthless	5.00
Total Premium Paid	10.20
Profit/(Loss)	(5.20)

	Price = 90
	Long call (K=90)	Long Put (K=90)
Premium Paid	4.40	5.80
Option value at expiry	Worthless	Worthless
Total Premium Paid	10.20
Profit/(Loss)	(10.20)

	Price = 95
	Long call (K=90)	Long Put (K=90)
Premium Paid	4.40	5.80
Option value at expiry	5.00	Worthless
Total Premium Paid	10.20
Profit/(Loss)	(5.20)

Short Strip = Buy 1 Call Option and Buy 2 Put Options

	Price = 80
	Long call (K=90)	2 Long Put (K=90)
Premium Paid	3.20	13.80
Option value at expiry	worthless	20.00
Total Premium Paid	17.00
Profit/(Loss)	3.00

	Price = 85
	Long call (K=90)	2 Long Put (K=90)
Premium Paid	3.20	13.80
Option value at expiry	worthless	10.00
Total Premium Paid	17.00
Profit/(Loss)	(7.00)

	Price = 90
	Long call (K=90)	2 Long Put (K=90)
Premium Paid	3.20	13.80
Option value at expiry	Worthless	Worthless
Total Premium Paid	17.00
Profit/(Loss)	(17.00)

	Price = 95
	Long call (K=90)	2 Long Put (K=90)
Premium Paid	3.20	13.80
Option value at expiry	5.00	worthless
Total Premium Paid	17.00
Profit/(Loss)	(12.00)

Protective Put = Share Purchase + Put Option
Since the expiry date of the put option is not mentioned. I have taken 80 March put options.

	Price = 50
	Share (Price = 87)	Long Put (K=80)
Premium Paid		3.00
Option value at expiry		30.00
Value of shares purchased at $87	(37.00)
Total Premium Paid	3.00
Profit/(Loss)	(4.00)

Covered Call = Shares Purchase + Short Call Option
Since the expiration of call option is not give. I have taken 95 March Call Option

	Price = 100
	Share (Price = 87)	Short Call (K=95)
Premium Received		3.20
Option value at expiry		(5.00)
Value of shares purchased at $87	13.00
Total Premium Received	3.20
Profit/(Loss)	11.20