Due to technological and market developments,the price of Beta stock has become quite volatile.Given this,you decide to buy two one-month put option contracts and two one-month call option contracts on this stock with an exercise price of $15.You purchased the calls at a quoted price of $.40 and the puts at a price of $2.30.What will be your total profit on these positions if the stock price is $29 on the day the options expire?
A)$1,890
B)$2,720
C)$2,260
D)$1,130
E)$1,360

Question

Quizplus · Accepted Answer

If the stock price is $29 on the day the options expire, then:

- The two call options will be worth: 2 x (29 - 15 - 0.4) = $26.20
- The two put options will be worthless, since the stock price is above the exercise price
- The total profit will be: 2,260 = 26.20 - 2.30 x 2 - 0.4 x 2

Due to Technological and Market Developments,the Price of Beta Stock