Finding the payoffs in the 'Probability in Finance'
Hi There,
In the course video, in min 3.55, the price of $100 was subtracted from the profit of $1000, hence $900 is displayed, in 'Call' leaf.
If you follow, similar logic, then instead of the -$1100 quote you should deduct the -$100 amount to make it -$1200.
Please suggest if my understanding is correct.
Regards
Sambodhan D.
1 answers ( 0 marked as helpful)
Hey Sambodhan,
So, the - $1,100 comes from losing $100 on each of the 10 stocks you bought (since the price is now 1,000, instead of 1,100) and the premium. Hence, in that scenario, we\'re would be paying 10 * 1,100 + 100 = $11,100 for something that is only worth 10 * 1,000 = $10,000. Thus, 10,000 - 11,100 = - 1,100 is the payoff in this scenario.
Best,
365 Vik
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