What is the call price for DWQ Jun 60?
An investor with no other positions buys 1 DWQ Jun 60 call at 3.50. If the investor exercises the call when the stock is trading at 68 and immediately sells the stock in the market, what is the investor's profit or loss?
What happens if a stock rises above $90?
If the stock rises above $90, the writer will be exercised and make $700 on the stock (buy at $83, deliver at $90) and keep the $400 received in premiums. Alternatively, the breakeven point is 79 (83 − 4), and the stock was sold (delivered) at 90 for an 11-point gain.
What is the breakeven point of a put?
When hedging with puts, the breakeven point is the cost of the underlying investment plus premium paid ($.81 cents plus $.0125 equals $.8225, or 82¼ cents).
How to calculate maximum gain on a long put?
The maximum gain on a long put is calculated by subtracting the premium from the strike price (95 − 6.50 = 88.50 per share). One contract represents 100 shares, so the buyer's maximum gain is $8,850 if the stock declines to 0. Because put buyers are bearish, they will make money if the stock falls below the breakeven point of 88.50.
How profitable is a long straddle?
A long straddle is profitable if the stock price moves sharply in either direction. In this example, the investor paid a premium of 6.25 to establish the straddle. To realize a gain, the stock must either fall below the strike price minus the combined premium (45 − 6.25 = 38.75) or rise above the strike price plus the combined premium (45 + 6.25 = 51.25).
What happens when you exercise a stock at 40?
When exercised, the customer is forced to buy stock at 40 that is used to cover the short position for no gain or loss. Because the premium of $500 was received, the investor has a gain of $500 on this position.
What is the maximum gain on a credit spread?
The maximum gain on any credit spread is the net credit. In this case, $1,000 was received and $100 paid out, so the net credit is $900.