Answer:
The correct answer is $320.
Explanation:
According to the scenario, computation of the given data are as follows:
MSFT price at expiry (S_T) = $250
MSFT with strike (K) Contract 1 = $220
MSFT with strike (K) Contract 2 = $120
So, we can calculate the payoff by using following formula:
Payoff = [(Stock price at expiry (ST) - Strike price of $220)] + [(Stock price at expiry (ST) - Strike price of $120)]
BY putting the value, we get
Payoff = ($250 - $220) + ($250 - $120)
= $30 + $130
= $160
As there are 2 contracts, then
Total payoff = $160 × 2
= $320
