Question

Calls Puts Strike June March June 45 March $6.84 $3.82 $8.41 $1.18 $2.09 50 $5.58 $3.08 $4.13 13. Consider a long strip constructed using the June 45 options. What is the profit if the stock price at expiration is at $60?

Answer 1

Long strip is an option strategy in which investor long one call option and long two put option having same strike price and maturity.

Profit of call option = Max(Stock price on expiry - strike price,0) - Call premium

Profit of put option = Max(Strike price - Stock price on expiry,0) - Put premium

Thus, Profit/Loss of Long strip would be:

Profit/Loss on Long strip =

[Max(Stock price on expiry - strike price,0) - Call premium]

+

2*[Max(Strike price - Stock price on expiry,0) - Put premium]

Putting the values to find Long strip Profit if the stock price on expiration is at $60 and using June Call and Put.

= [Max(60-45,0)-8.41]+2*[max(45-60,0)-2.09]

= [15-8.41]+2*[0-2.09]

= 6.59-4.18

= $2.41

Hope this will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.