Fight Finance

(a) A long call option's payoff at maturity is equal to the maximum of zero or the underlying asset price at maturity minus the exercise price. $f_\text{T,LC} = max(S_T - K, 0)$

(b) A long call option's profit is equal to the payoff at maturity less the initial option price. $\pi_\text{LC} = max(S_T - K, 0) - c_0$

(c) The breakeven price is the underlying asset price at which a long option contract gives zero profit. When $max(S_T - K, 0) - c_0 = 0$, then $S_T = K+c_0$.

(d) A call option's break-even price is always more than its strike price.

(e) Call options should only be exercised at maturity if the underlying asset price is above the break-even price.

(a) $f_{LC,T}=max⁡(S_T-X_T,0)$

(b) $f_{LC,T}=max⁡(X_T-S_T,0)$

(c) $f_{LC,T}=-max⁡(S_T-X_T,0)$

(d) $f_{LC,T}=-max⁡(X_T-S_T,0)$

(e) $f_{LC,T}=min⁡(X_T-S_T,0)$

(a) $f_{SC,T}=max⁡(S_T-X_T,0)$

(b) $f_{SC,T}=max⁡(X_T-S_T,0)$

(c) $f_{SC,T}=-max⁡(S_T-X_T,0)$

(d) $f_{SC,T}=-max⁡(X_T-S_T,0)$

(e) $f_{SC,T}=min⁡(X_T-S_T,0)$

(a) $f_{LP,T}=max⁡(S_T-X_T,0)$

(b) $f_{LP,T}=max⁡(X_T-S_T,0)$

(c) $f_{LP,T}=-max⁡(S_T-X_T,0)$

(d) $f_{LP,T}=-max⁡(X_T-S_T,0)$

(e) $f_{LP,T}=min⁡(X_T-S_T,0)$

(a) $f_{SP,T}=max⁡(S_T-X_T,0)$

(b) $f_{SP,T}=max⁡(X_T-S_T,0)$

(c) $f_{SP,T}=-max⁡(S_T-X_T,0)$

(d) $f_{SP,T}=-max⁡(X_T-S_T,0)$

(e) $f_{SP,T}=min⁡(X_T-S_T,0)$

(a) You have the right to buy the underlying stock in 3 months’ time for a price of $50 if you want.

(b) If the dividend in 4 months were unexpectedly cancelled because the firm decided to re-invest its cash rather than pay it out then the 3 month call option price would be unaffected.

(c) If the stock price is $49 in 3 months then you wouldn’t exercise the ‘out of the money’ option.

(d) If the stock price is $51 in 3 months then you wouldn’t exercise or else you’ll incur a loss of $3.

(e) If the stock price is $57 in 3 months then you would exercise. Your profit would be $3 and payoff at maturity $7.

(a) It's 'out of the money'.

(b) It will give a positive profit: $-c_0 + max(S_T-K_T,0) > 0$.

(c) It will give a positive payoff at maturity: $max(S_T-K_T,0) > 0$.

(d) The underlying asset price is below the option strike price: $S_T < K_T$.

(e) The underlying asset price is above the break-even price.