Mock test - option payoff question test, net, confusion, question, option

yospaghetti

Q52: What is the payoff to the option…
I wonder if the answer should be net of the option cost… coz that is the real payoff… confusion here.

canadiananalyst

eriq is right
payoff is just the difference between exercise price and spot price if favorable
there is a difference between cost, profit and payoff of an option

NakedPuts

i think payoff and profit are two separate issues. remember premium is paid to enter into contract, not to settle it

Chuckrox

that sort of thing keeps screwing with me… when they ask for the payoff, they’re not asking for the total profit, just the transaction (payoff) at option expiration so you don’t include the premium…
Smilar thing kept happening with the swaps. they’ll set up witha bond issue and a swap, then ask for the payment or duration resulting from the swap, and I keep thinking it includes the payment to the bond.
Guess i have o read the quetions more carefully.

infinitybenzo

Yeah, I had the same issue
If you look at the board there were a lot of problems with this test