Fastbuck, Inc. trades put and call options on common stock. Acting on a tip, on January 31,
Question:
Fastbuck, Inc. trades put and call options on common stock. Acting on a tip, on January 31, 2017, Fastbuck wrote both calls and puts expiring on March 31-known as a "straddle"-on 5,000 shares of Exland Farm Services stock that was selling for \($42\) a share. March 2017 calls with a strike price of \($45\) were selling for \($2;\) puts with the same terms were selling for \($3.10.\) On February 28, when the price of Exland stock rose to \($49\) and the puts were selling at \($0.80,\) Fastbuck sold the calls at \($4.20.\) On March 31, Exland stock fell to \($47\) and the puts expired without being exercised.
Required
a. Prepare journal entries to record writing the puts and calls and any other related accounting events including expiration of the puts. The books are closed monthly.
b. Calculate Fastbuck's cash gain or loss on the straddle.
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