You find digital option quotes on jobless claims. You can buy a call option with a strike price of 300,000 jobless claims. This option pays $100 if actual claims exceed the strike price and pays zero otherwise. The option costs $68. A second digital call with a strike price of 305,000 jobless claims is available at a cost of $53. Suppose you buy the option with the 300,000 strike and sell the option with the 305,000 strike and jobless claims actually wind up at 303,000. Your net profit on the position is ________.

Question

Quizplus · Accepted Answer

Initial cost = −C300 + C305 = −$68 + $53 = −$15
At actual jobless claims of 303,000, at contract maturity the C300 call is worth $100 and the C305 call is worthless. Profit = +$100 − $0 − $15 = $85

You Find Digital Option Quotes on Jobless Claims