1. What is the profit of a call option that is “At The Money” atexpiration?...

1. What is the profit of a call option that is “At The Money” at expiration?

2. What is the profit of a short put option that is “At The Money” at expiration?

3. What is your maximum gain if you’re short a call option and long the corresponding put option? (Same underlying asset, same strike price, same expiration date)

Expert Solution

Answer 1)

Profit of a call option "at the money" will be 0. As there is no time value of money and strike Price and stock price are same.

Answer 2)

profit of a short put option that is “At The Money” at expiration will be premium received as there is no time value of money and strike Price and stock price are same.

Answer 3)

Maximum gain from put Option will be if Price fall to 0, then the strike price can be the max. profit.

Maximum gain from the Shorting of call when prices fall to 0 will be Premium received.

Max profit = Strike Price + Premium on Call

jeff jeffy answered 3 years ago

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