suppose a put option with a $40 strike is also available with premium of $2.80. calculate...
suppose a put option with a $40 strike is also available with premium of $2.80. calculate your percentage return for the six-month holding period if the stock price declines to $36 per share
Homework Answers
SIX MONTH HOLDING PERIOD RETURN IS ASKED.
IN PUT OPTION, PAY OFF WILL BE POSITIVE, IF PRICE ON EXPIRY(36) IS LOWER THAN STRIKE PRICE(40)
HERE, PAY OFF = 40-36 = 4
HE HAS PURCHASED PUT OPTION, SO HE HAS PAID PREMIUM OF 2.80.
SO NET PROFIT = PAY OFF - PREMIUM PAID = 4 -2.8 =1.2
SIX MONTH HOLDING PERIOD RETURN = NET PROFIT/INVESTMENT = 1.2/2.8 = 0.42857 = 42.86%
HERE INVESTMENT IS PREMIUM PAID.
ANSWER : 42.86% (THUMBS UP PLEASE)
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