In: Finance
The following option prices were observed for a stock (non-dividend) for July 6 of a
particular year.
The stock is priced today at $165.13/ share. Assume interest rate=0%
The options are European.
In the following problems, determine the profits for possible stock prices of
$150, 155, 160, 165, 170, 175, and 180. Answer any other questions as requested.
Call Premium Put Premium
Strike | Aug |Oct |Aug |Oct
$165| $5.25| $8.1 |$4.75| $6.75
Short one October 165 put contract. Hold it until the option expires. Determine the profits and graph the results. Identify the break-even stock price at expiration. What is the maximum gain and loss on this transaction?
=> Premium for put option with strike price of $ 165 which is expiring at October is given as $ 6.75 and it is also given that the option is European ( which mean we can only exercise the option at the expiry ) and current stock price = $ 165.13
* Here we are shorting the put option, so we well have that premium of $ 6.75 credited.
* In case of shorting a put option the maximum profit will be the premium ( here it is 6.75) and maximum loss is unlimited.
* We can find the break even stock price by subtracting premium amount from the strike price:
Formula used in excel: