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# Expiration date payoffs for option positions

The common stock of Company XYZ is currently trading at a price of \$42.00 both a put and a call option are available for XYZ stock, each having an exercise price of \$40 and an expiration date in exactly six months. The current market prices for the out and call are \$1.45 and a\$3.90, respectively.

The risk-free holding period return for the next six month is 4 percent, which corresponds to an 8 percent annual rate.
a) For each possible stock price in the following sequence, calculate the expiration date payoffs (net of the intial purchase price) for the following positions:(1) buy one XYZ call option, and (2) short one XYZ call option: 20,25,30,35,40,45,50,55,60

b) Using the same potential stock prices as in Part a, calculate the expiration date payoffs (net of the initial purchase price) for the following positions: (1) buy one XYZ put option, and (2) short one XYZ put option. Draw a graph of these payoff relationships, labeling the prices at which these investments will break even.

#### Solution Summary

Calculates the expiration date payoffs for option positions.

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