Page 73 - DMGT513_DERIVATIVES_AND_RISK_MANAGEMENT

Derivatives & Risk Management

Notes
Table 6.2
)
Pay-off from Call Buying/Long (
S Xt c Payoff Net Profit
57 60 2 0 -2
58 60 2 0 -2
59 60 2 0 -2
60 60 2 0 -2
61 60 2 1 -1
62 60 2 2 0
63 60 2 3 1
64 60 2 4 2
65 60 2 5 3
66 60 2 6 4

A European call option gives the following payoff to the investor: max (S – X , 0).
t
The seller gets a payoff of: -max (S – X , 0) or min (X – S, 0).
t t

Notes
S - Stock Price
X - Exercise Price at time 't'
t
C - European Call Option Premium

Pay-off - Max (S – X , O)
t
Net Profit - Payoff minus 'c'

Figure 6.1: Payoff from Call Buying/Long

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