Question

You sold a call option at strike 105 for a price of $3 and sold a put option at strike 95 for a price of $2, both options with the same maturity. In what range of stock prices at maturity will you make money or not lose (on your net payoff)?

(a) 90 110 (b) 93 102 (c) 95 105 (d) 97 108

Answer 1

Net pay off from call option = premium received - Max ( stock price - strike price,0)

Net pay off from put option = premium received - Max ( strike price - stock price , 0)

Stock Prices (A)	Strike price of Put option (B)	Strike price of call option (C)	Premium received on Put option( D )	Premium received on Call option(E)	Payoff from Put Option F = -MAX( B-A ,0)	Payoff from Call Option G = - MAX (A -C ,0)	Payoff from Put Option ( H = D - F)	Payoff from Call Option ( I = E - G)	Total Payoff ( H + I)
90	95	105	2	3	-5	0	-3	3	0
91	95	105	2	3	-4	0	-2	3	1
92	95	105	2	3	-3	0	-1	3	2
93	95	105	2	3	-2	0	0	3	3
94	95	105	2	3	-1	0	1	3	4
95	95	105	2	3	0	0	2	3	5
96	95	105	2	3	0	0	2	3	5
97	95	105	2	3	0	0	2	3	5
98	95	105	2	3	0	0	2	3	5
99	95	105	2	3	0	0	2	3	5
100	95	105	2	3	0	0	2	3	5
101	95	105	2	3	0	0	2	3	5
102	95	105	2	3	0	0	2	3	5
103	95	105	2	3	0	0	2	3	5
104	95	105	2	3	0	0	2	3	5
105	95	105	2	3	0	0	2	3	5
106	95	105	2	3	0	-1	2	2	4
107	95	105	2	3	0	-2	2	1	3
108	95	105	2	3	0	-3	2	0	2
109	95	105	2	3	0	-4	2	-1	1
110	95	105	2	3	0	-5	2	-2	0

In the range of 90 -110 we will make money or not lose any money.