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An investor has a neutral to slightly bearish outlook on ABC stock, currently trading at $50 per share. The investor wants to generate income while potentially profiting from a moderate decline in the stock price. To implement this strategy, the investor sells one ABC 45 put option contract with a strike price of $45 and a premium of $2 per share, and simultaneously sells one ABC 55 call option contract with a strike price of $55 and a premium of $1.50 per share. Both options have the same expiration date. If the stock price remains at $50 at expiration, what will be the profit or loss from this options strategy?
a.
The investor will incur a loss of $150, calculated as the difference between the call option premium received ($150) and the put option premium paid ($200), as the stock price remains between the two strike prices at expiration.
b.
The investor will realize a profit of $550, calculated as the sum of the put option premium ($200) and the call option premium ($150), plus the difference between the stock price and the put strike price ($50 - $45 = $5 per share, totaling $500), if the stock price remains at $50 at expiration.
c.
The investor will realize a profit of $350 ($200 from the put option premium and $150 from the call option premium) if the stock price remains at $50 at expiration, as both options will expire worthless.
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