1a You purchase a long call option giving you the right to b

1a. You purchase a long call option giving you the right to buy 100 shares of Ames Corp. for a total premium of $1,800. The strike price on the option is $15 and the final stock price is $80. What is your profit or loss?

b. You purchase a long put option giving you the right to sell 100 shares of Brahma Corp. for a premium of $2,200. The strike price of the option is $100 and the final stock price is $10. What is your profit or loss?

Solution

1. a) Stock price is higher than strike price. Since this is a Call option i will excercise my right

Profit = ( 80-15 ) x 100 = 6500

Premium    = 1800

Net profit    = 4700

.b) The stock price is lesser than the strike price , hence i will excercise my put option right.

Profit = (100-10 ) x 100 = 9000

Premium = 2200

Net profit    = 6800