Use the declared simple model
All prices are fictional per-unit inputs. Premium is added without financing. No current fair-price, margin or settlement-policy conclusion is requested. Keep holder payoff separate from the selected side’s cash movements.
Reconstruct the ledger
Write the holder payoff first, then the signed premium and settlement, and finally quantity. Wrong options change a layer or count a unit multiplier twice. Explain the changed assumption instead of only recording the answer letter.
Try the questions
Long call: K=100, premium=6, terminal S=103, one unit. What is simple profit?
- A.
3
- B.
−3
- C.
−6
Answer and explanation
Answer: B
The option is in the money but has not recovered its premium.
- A
That is holder payoff before premium.
- B
Holder payoff 3 minus paid premium 6.
- C
That would be the result if payoff were zero.
Short put: K=100, premium received=5, terminal S=90, one unit. What is simple profit?
- A.
−15
- B.
−5
- C.
15
Answer and explanation
Answer: B
Use the writer’s side consistently for both cash movements.
- A
This incorrectly subtracts a received premium.
- B
Writer settlement −10 plus receipt 5.
- C
This gives the writer the holder’s positive payoff too.
Three contracts each represent 100 units; premium quote is 6 per unit. What is total premium magnitude?
- A.
18
- B.
1,800
- C.
180,000
Answer and explanation
Answer: B
Represented units are 300, each with premium 6.
- A
This treats the premium as per contract.
- B
3×100×6 applies each unit factor once.
- C
This applies the multiplier twice.