Question

5. Suppose a novice investor buys a call option on 45,000 barrels of oil with an exercise price of $45 per barrel and simultaneously buys a put option on 45,000 barrels of oil with the same exercise price of $45 per barrel. Her net payoff per barrel on these option contracts is ________ if the market price per barrel is $43 and ________ if the price per barrel is $47.

Answer 1

Answer:

A. $2, $2

Explanation:

Since the market price per barrel is $43 so the call option is not relevant at $45 but he can apply the put option for $45 and make $2 which comes from deducting $43 from $45

Simply like this the market price per barrel is $47 so the put option is not relevant at $45 but he can apply the call option for $45 and make $2 which comes from deducting $45 from $47