Question

1. Suppose you are short 50 contracts on a 2-year 50-call option on TSLA. How much will your option position increase in value if TSLA stock price goes down by $2 (use negative number if value decreases).

2. Suppose you are long 100 contracts on a 1-year 25-put option on AMZN. How much will your option position increase in value if AMZN stock price goes up by $1 (use negative number if value decreases).

3. Suppose you are short 50 contracts on a 2-year 50-call option on TSLA and long 25 contracts on TSLA stock. How much will your option position increase in value if TSLA stock price goes down by $1 (use negative number if value decreases).

4. Suppose you are short 50 contracts on a 2-year 50-call option on TSLA and long 10 contracts on TSLA stock. How much will your option position increase in value if TSLA stock price goes down by $1 (use negative number if value decreases).

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Answer 1

PART 1- Increase in option position if stock price goes down by $2-

Net Increase in position = (reduction in price * number of Short positions held)

Net increase = ($2 * 50 contracts )

Net Increase = $100

PART 2- Increase in option position if stock price goes up by $1-

Net Increase in position = (Increase in price * number of long positions held)

Net increase = ($1 * 100 contracts )

Net Increase = $100

PART 3- Increase in option position if stock price goes down by $1-

Net Increase = (Decrease in price * number of short positions) - (decrease in price * number of long positions)

Net increase = ($1 * 100 contracts ) - ($1 * 25 contracts)

Net Increase = $75

PART 4- Increase in option position if stock price goes down by $1-

Net Increase = (decrease in price * number of short positions) - (decrease in price * number of long positions)

Net increase = ($1 * 50 contracts) - ($1 * 10 contracts)

Net Increase = $40

NOTE:- The above computation is done as on expiry date.

Incase of any doubt, please comment below. I would be happy to help.