The market price of Jasper, Inc. is quite volatile and uncertainty concerning some merger activity is expected to keep the stock price volatile for the next few weeks. Given this situation, you decide to
Buy both a one-month put and a one-month call option on this stock with an exercise price of
$42)50. You purchased the call at a quoted price of $.45 and the put at a price of $2.25. What will
Be your total proﬁt or loss on this investment if the stock price is $34.50 on the day the options
Expire?
A) -$1,070
B) -$930
C) -$45
D) $530
E) $575

Question

Quizplus · Accepted Answer

If the stock price is $34.50, both the call and put options would expire worthless as they have an exercise price of $42.50. The total amount paid for the options is $2.70 ($0.45 for the call and $2.25 for the put). Therefore, the total loss would be the amount paid for the options, which is -$270. However, since the question asks for profit or loss, the answer would be $530 loss (negative profit).

The Market Price of Jasper, Inc