| CHAPTER 4 |

Expiration Profit and Loss

1.  Using the grid below, draw the parity graphs (the value at expiration) for the following positions:

a.   long a 65 call

b.   short a 70 call

c.   long a 75 put

d.   short an 80 put

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2.  Using the grid below, draw the parity graphs (the value at expiration) for the following combination positions:

a.   long a 70 put and long a 75 call

b.   long an 80 put and short an 80 call

c.   short two 65 calls

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3.  The slopes of the various option and underlying positions at expiration can be summarized as follows:

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For each position below, what is the slope of the expiration graph over the given underlying price intervals? From these slopes, sketch the shape of the expiration P&L graph. (The sketch need not be to scale—the approximate shape is sufficient.)

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4.  Using the underlying price and option prices below, draw the expiration profit and loss graph for the given positions. What are the breakeven prices for each position?

underlying price = 72.00

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a.   long a March 70 call

b.   short a March 65 put

c.   long a March 75 put

d.   short a March 80 call

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e.  long a March 70 call and short a March 80 call

f.   long a March 80 put and short 2 March 70 puts

g.   short a March 70 call and long a March 70 put

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h.  long a March 70 put and long an underlying contract

i.   long a March 65 put and short a March 75 call

j.   long a March 70 call and long a March 70 put

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5.  You have the position and contract prices shown in the following chart.

a.   What will be your profit or loss if the underlying contract at expiration is trading at a price of 70.00?

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b.   What is the expiration slope of your position ...

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c.   Using the slopes of your position and the P&L at 70.00, what will be your profit or loss at expiration at the following underlying prices?

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d.   To the nearest .01, what are the breakeven prices for the entire position?

e.   On the following grid, draw the value of your position at expiration.

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