The market price of ABC stock has been very volatile and you think this volatility will continue for a few weeks. Thus,you decide to purchase a one-month call option contract on ABC stock with a strike price of $25 and an option price of $1.50. You also purchase a one-month put option on ABC stock with a strike price of $25 and an option price of $.70. What will be your total profit or loss on these option positions if the stock price is $24.60 on the day the options expire?

Question

Quizplus · Accepted Answer

The call option will expire worthless, resulting in a loss of $1.50. The put option will be in-the-money by $0.40, resulting in a profit of $40. Total profit/loss = -$1.50 + $40 = -$1.80.

The Market Price of ABC Stock Has Been Very Volatile