Several rumours concerning Wyslow have started circulating.These rumours are causing the market price of the share to be quite volatile.Given this situation, you decide to buy both a one-
Month put and a call option on this share with an exercise price of €15.You purchased the call at a
Quoted price of €.20 and the put at a price of €2.10.What will be your total proﬁt or loss on these
Option positions if the share price is €4 on the day the options expire?

Question

Quizplus · Accepted Answer

The call option will expire worthless since the share price (€4) is below the exercise price (€15). The put option will be exercised, giving a profit of (€15 - €4) = €11 per share. The total profit from the put is €11 - €2.10 (cost of put) = €8.90 per share. Since the call cost €0.20, the net profit per share is €8.90 - €0.20 = €8.70. Assuming 100 shares per option, the total profit is €870.

Several Rumours Concerning Wyslow Have Started Circulating