Question

An option trader writes 5 June 255 calls at 3 and 5 June 245 puts at 2. If the trader later repurchases the calls at 4 and the puts expire worthless, the trader's profit or loss will be:

Answer 1

Answer:

$500 profit

Explanation:

The calls are being made at 4. Therefore, the trader would be receiving

Income = 1000+1500 = $2500

The calls were purchase at 4 and puts expired worthless.

This implies; at 4 = 4×5 = 20

20×100 = $2000

Net profit/loss = 2500 - 2000

Net profit = $500