You sell one IBM July 90 call contract for a premium of $4 and two puts for a premium of $3 each. You hold the position until the expiration date, when IBM stock sells for $95 per share. You will realize a ______ on this strip.
A. $300 profit
B. $100 loss
C. $500 profit
D. $200 profit
C. $500 profit
Selling an IBM July 90 strip entails selling two IBM July 90 puts and one IBM July 90 call. Initial income = C90 + 2P90 = [4 + 2(3)](100) = $1,000. If the final stock price is $95, the position value is found as:
Profit = [-Max ($0, $95 - 90) + 2Max ($0, $90 - $95)](100) + $1,000 = -$500 + $1,000 = $500
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