Question

1. Define a call and put option. Using the following examples explain what the investor is receiving. Buy an XYZ July 50 call @ $2.10. Buy an XYZ October 85 put @ $1.75. Sell an XYZ April 40 put @ $3.50. Sell an August 55 call $1.90.

Answer 1

Call options are classified as financial cintract between buyer and seller which gives the owner the right but not obligation to buyb stock or any ither underlying asset at specific price within specific time period. Similarly, put option is the financial contract between buyer and seller which gives the ownwr the right but not obligation to sell stock kr underlying asset within specific time at specific price.

Buy July 50 call at 2.10$ means buying call option at premium price of 2.10$ assuming price will rise beyond 50. Maturity at July end.

Buy Octover 85 put at 1.75$ means premium is 1.75$ assuming price will decline below 85. Maturity at October end.

Sell april 40 put @3.50$ means premium is 3.5$ and assuming option will rise beyond 40. Maturity at april end.

Sell August 55 call @1.9$ means premium is 1.9$ and assumptions that price will fall below 55. maturity at August end.

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