You think the price of a utility company stock, which is currently $80 is unlikely to change significantly over the next three months. To profit from this expectation, you sell a straddle position, with a call and put option, worth $9 and $5 per share, respectively, with three months to expiration, and a strike price of $80.
If at expiration the stock is trading at $93, what is your net profit on this position?
Remember that option contracts come in multiples of 100 shares.
Call option is the right to buy a specified security at a specified price on a future date
Put option is the right to sell a specified security at a specified price on a future date
Since the market price on maturity is higher than the strike price, call option will be exercised and put option will not be exercised
Profit = [(80-93) + 9+5]*100
= $100
You think the price of a utility company stock, which is currently $80 is unlikely to...