Puts and Calls.
1. John (a speculator; he doesn’t own the stock) has purchased a put option with an exercise price of $56 for a premium of $10. A few days later, John buys the stock at $44 per share and he also exercises the option. Determine John’s net dollar gain per share. Check figure: Net gain or loss = $56 - $44 - $10 = $2 gain. Remember: Put option is the right to sell; call option is the right to buy.
2. Beth (a hedger; she owns the stock) has previously purchased stock in a company at $53 per share. Call options at a $50 exercise price presently have a $4 premium per share. Beth sells/writes a call option to Joe (he buys the option from Beth) on the stock that she owns. If the call option is exercised by Joe when the price of the stock is $58, what is the net gain or loss per share to Beth?