Chapter 02 · Section 2.1

The combined position

Nick is the writer of a Dec IBM 104 put for which he receives a premium of $3. He is also short 100 IBM shares to cover the position. As a result the combined position is equivalent to:

• a) a short Dec 104 call at $1
  No. The premium is equal to the sum (and not the difference) of the premium of the put and the price received for the underlying minus the exercise price of the put: eg. 3 + (106 - 104) = $5.
  b) a short Dec 104 call at $5

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