Question

Vincent purchases a share of the stock and creates a floor by entering into a position in a 6-month option with strike 95. Calculate Vincent's total payoff and profit in 6 months if the stock price at that time is 80.

Answer 1

Based on the information given, it should be noted that the total payoff and profit will be -5 and -9.80 respectively.

How to calculate profit.

The following are gotten from the complete information:

• Current stock price = 100
• Put option strike= 95
• Put premium = 4.80
• Stock price at maturity = 80

Therefore, the payoff will be:

= (80 - 100) + (95 - 80)

= -20 + 15

= -5

The profit will be:

= Payoff - Put premium

= -5 - 4.80

= -9.80.

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