Assume that you have purchased a call option with a strike price $60 for $5. At the same time, you purchase a put option on the same stock with a strike price of $60 for $4. If the stock is currently selling for $75 per share, calculate the dollar return on this option strategy.
A) $10
B) -$4
C) $5
D) $6
E) $15

Question

Quizplus · Accepted Answer

For the call option: 
If the stock price is $75 and the strike price is $60, then the option is in-the-money by $15. 
So, the profit on the call option is $15 - $5 (initial premium) = $10.

For the put option: 
If the stock price is $75 and the strike price is $60, then the option is out-of-the-money. 
So, the loss on the put option is $4 (initial premium).

Overall dollar return on the option strategy is the sum of the profit on the call option and the loss on the put option: 
$10 - $4 = $6.

Assume That You Have Purchased a Call Option with a Strike