Question

In: Finance

What are both the payoff and the profit or loss per share for an investor in the following twosituations?

i. Jean buys the June, 2022 expiration Paypal call option for $6.40 with an exercise priceof $120, if the Paypal stock price at the expiration date is $132?

ii. Joan buys a Paypal put option for $4.50 with the same expiration date and exerciseprice as Jean’s call option, and the Paypal stock price is also $132 at the expirationdate?

Expert Solution

(i)

Payoff per share

= Stock price at expiration-Strike price

= $132-$120

= $12

Profit per share

= Payoff per share-Premium

= $12-$6.40

= $5.60

(ii)

As the strike price is less than the stock price, put option will not be exercised and hence payoff will be zero.

Loss per share

= Payoff per share-Premium

= $0-$4.50

= -$4.50

i. Payoff per share is $12.

Profit per share is $5.60.

Junaid answered 2 years ago

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