Question

You sell one IBM July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when IBM stock sells for $95 per share. You will realize a ______ . A. $300 profit B. $100 loss C. $500 profit D. $200 profit

Answer 1

Answer: C. $500 profit

Step-by-step explanation:

The total premium you will receive from selling both bearing in mind that contracts are per 100 each will be;

= (Call Premium + Put Premium) * 100

= (4 + ( 3 * 2)) * 100

= $1,000

As the prices went up, the only option that will be exercised will be the call option. The loss made when this happens will be;

= ( New Stock price - Exercise price) * 100

= ( 95 - 90) * 100

= $500

Total Profit (loss) made = Premium - loss

= 1,000 - 500

= $500