Question

You purchased Netflix at $140.71/share in 2017. Now, Netflix has gone up to $288.94 today. You believe that Netflix will continue going up but you would like to protect the profit you have already earned by engaging in “Protective Put” strategy just in case it goes down in the future. You decide to purchase a put option with an expiration date on June 15, 2018, and K=$270 and premium = $15.15. (3 points)

Show the contingency graph and label each point.

What is your profit/loss if the stock price on the expiration date is (1) $200, (2) $300, (3) $400?

Answer 1

Payout table:

price of stock	Profit / Loss on stock	Value of put option on Expiry	Premium Paid	Net Profit
200	-88.94	70	-15.15	-34.09
210	-78.94	60	-15.15	-34.09
220	-68.94	50	-15.15	-34.09
230	-58.94	40	-15.15	-34.09
240	-48.94	30	-15.15	-34.09
250	-38.94	20	-15.15	-34.09
260	-28.94	10	-15.15	-34.09
270	-18.94	0	-15.15	-34.09
280	-8.94	0	-15.15	-24.09
290	1.06	0	-15.15	-14.09
300	11.06	0	-15.15	-4.09
310	21.06	0	-15.15	5.91
320	31.06	0	-15.15	15.91
330	41.06	0	-15.15	25.91
340	51.06	0	-15.15	35.91
350	61.06	0	-15.15	45.91
360	71.06	0	-15.15	55.91
370	81.06	0	-15.15	65.91
380	91.06	0	-15.15	75.91
390	101.06	0	-15.15	85.91
400	111.06	0	-15.15	95.91

Contigency Graph:

Profit/loss if the stock price on the expiration date is (1) $200, (2) $300, (3) $400?

Using above table:

price of stock	Net Profit
200	-34.09
300	-4.09
400	95.91

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