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I need to calculate the payoff from these 4 financial derivatives when the price of stock is $352.75 on the maturity date.

  1. Short a 9-month European call option on stock with a strike price of $388.03

  2. Short a 9-month European call option on stock with a strike price of $423.3

  3. Long a 9-month European call option on stock with a strike price of $306.89

  4. Long a 9-month European put option on stock with a strike price of $388.03.

I used the formula for call and put options such as max(St − K, 0) and got the answer 186.97, but apparently this is wrong. I'm not sure where I'm going wrong, is it possibly because I'm not taking the expiry of the options into account?

(388.03-352.75)+(423.3-352.75)+(352.75-306.89)+(388.03-352.75)=186.97

samkene123
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  • Please edit to include your calculation, otherwise it's not possible to see where you went wrong. – lulu May 05 '21 at 12:18
  • Formatting note: the system that formats for this site interprets dollar signs as part of the language. Using dollar signs to refer to currency confuses the system. I have edited to insert the dollar signs you wanted, you can click on "edit" to see the syntax I used. – lulu May 05 '21 at 12:21
  • And, apparently you overwrote my edits. Please edit to correct the use of dollar signs., – lulu May 05 '21 at 12:23
  • As to your calculation: you are ignoring the option features. Nobody is exercising a call at $388$ when the stock is at $352$. – lulu May 05 '21 at 12:24
  • Thankyou, I corrected my use of the option features and got the correct answer of 81.14 – samkene123 May 05 '21 at 13:00
  • It is worth remarking that the exact value of the underlying is not relevant. The range matters, as we need to know which options will be exercised, but all that happens here is that the neither short option is exercised and both long opts are, for a net payout of $388.03-306.89=81.14$. – lulu May 05 '21 at 13:34

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