You sell one MBI July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when MBI stock sells for $95 per share. You will realize a ________ on this strip.

Question

Quizplus · Accepted Answer

Selling an MBI July 90 strip entails selling two MBI July 90 puts and one MBI July 90 call. Initial income = C90 + 2P90 = [4 + 2(3)](100) = $1,000. If the final stock price is $95, the position value is found as:
Profit = [−Max ($0, $95 − 90) + 2Max ($0, $90 − $95)](100) + $1,000 = −$500 + $1,000 = $500

You Sell One MBI July 90 Call Contract for a Premium