Protecting a short position with options

P

Paul Yeoh

New Member
#1
#1
Hi. This is my current situation.
I sell 100 shares of ABC Co. short at $80. Also, I buy a 70 call option for $5 to protect against the stock price going up.
1. If the stock ends up at $100, what will be my overall gain/loss?
2. If the stock ends up at $50, what will be my overall gain/loss?
3. What is the most I can lose under this short sale-call option plan?
4. If I have an unprotected short sell position (no call option), what is the most I can lose?
5. Under the condition described in part (4), if I had a limit order to buy the stock and close down the position at $60, what is the most I could lose?

Thanks all for leaving me your solution.
 
nac

nac

Well-Known Member
#2
#2
Paul Yeoh said:
Hi. This is my current situation.
I sell 100 shares of ABC Co. short at $80. Also, I buy a 70 call option for $5 to protect against the stock price going up.
1. If the stock ends up at $100, what will be my overall gain/loss?
2. If the stock ends up at $50, what will be my overall gain/loss?
3. What is the most I can lose under this short sale-call option plan?
4. If I have an unprotected short sell position (no call option), what is the most I can lose?
5. Under the condition described in part (4), if I had a limit order to buy the stock and close down the position at $60, what is the most I could lose?

Thanks all for leaving me your solution.
Click to expand...
1. From stock you will lose $20 and from call you will earn $30, so net is $10 in profit.
2. From stock you will earn $30 and from call you will lose $5, so net is $25 in profit.
3. You have not mentioned when did you initiated both the position. Up to my knowledge you couldn't have initiated both those position at the same time unless or until there was something weird. In this case, there will be no loss will occur to your position. Where ever stock closes, you will be in profit. (It can be $0 or $1000000000.....)
4. Unlimited.
5. If the stock has come and kiss your limit @ $60 or below, your position will earn $20.
 
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