Answer :
The price of Tesla is $2000 on December 16, 2022Profit = Spot price - Strike price - Premium= $2000 - 900 - 190= $910, which is the profit.The terms mentioned in the problem is strike price.A strike price is a specified price at which an options contract can be exercised.
It is the cost at which the contract holder may buy or sell the underlying asset. It's also known as the exercise price.In the given question,The price of the put option with a strike price of $900 expiring on December 16, 2022, is $170.Bought 1 contract at $170, the total cost of the contract would be $170 x 100 = $17,000.Now, let's calculate the profit or loss for both scenarios:i) The price of Tesla is $500 on December 16, 2022Profit = Strike price - Spot price - Premium= 900 - 500 - 170= $2300, which is the profit.ii)
The price of Tesla is $1000 on December 16, 2022Profit = Strike price - Spot price - Premium= 900 - 1000 - 170= -$270, which is the loss.Now, let's calculate the profit or loss for the given scenarios: The price of the call option with a strike price of $900, expiring on December 16, 2022, is $190.The total cost of the contract = $190 x 100 = $19,000i) The price of Tesla is $500 on December 16, 2022Loss = Premium= $190, which is the loss.ii) The price of Tesla is $2000 on December 16, 2022Profit = Spot price - Strike price - Premium= $2000 - 900 - 190= $910, which is the profit.
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Final answer:
The profit from the Tesla put option at $500 share price on expiry is $23,000, while at $1,000, it results in a loss of $17,000. The profit from the Tesla call option at $2,000 share price on expiry is $91,000, and at $500, it results in a loss of $19,000.
Explanation:
To calculate the profit or loss from the options contracts for Tesla, we need to consider the option premium paid and the intrinsic value of the option at expiry.
Put Option
If Tesla is at $500 on expiry, the put option's intrinsic value is $900 - $500 = $400 per share. Since each contract represents 100 shares, the total intrinsic value is $400 x 100 = $40,000. Subtracting the premium paid ($170 x 100 = $17,000), the profit is $40,000 - $17,000 = $23,000.
If Tesla is at $1,000 on expiry, the put option expires worthless, and the loss is equal to the premium paid, which is $17,000.
Call Option
If Tesla is at $500 on expiry, the call option expires worthless, and the loss is equal to the premium paid, which is $19,000 ($190 x 100).
If Tesla is at $2,000 on expiry, the call option's intrinsic value is $2,000 - $900 = $1,100 per share. The total intrinsic value is $1,100 x 100 = $110,000. Subtracting the premium paid ($190 x 100 = $19,000), the profit is $110,000 - $19,000 = $91,000.
