Question

Consider a call option on an asset with an exercise price of $100, a put option on that same asset with an exercise price of $100, both expiring at the same time. Assume that at the expiration, the current market price of the asset is each of the following two values. Explain what happens from the perspective of the long position for each of the two options.

Answer 1

Answer: The values are missing below are the values

a. $105

b. $95

answer :

a) $5

b) -$5 ( loss )

Step-by-step explanation:

From the perspective of the long position for each of the two options upon expiration

a) For $105

for the long position ( long call ) since the expired price > than the exercise price

i.e. $105 > $100 the profit = $105 - $100 = $5

b) For $95

For the long position ( long call ) since the expired price < than the exercise price

i.e. $95 < $100 the profit = $95 - $100 = - $5 ( a loss is incurred )