An investor wrote a $45 call option and bought a $50 put option, both of which had the same time to expiration. On the transaction date, the stock price was $45, and the prices for the call and put options were $8 and $10, respectively. Subsequently, the stock price fell by $10, where it remained through the option expiration date. As of the expiration date, the total profit on the combined option position, ignoring commissions and other transactions, is

Answer (C) is correct. The amount of gain and loss on a call option for the writer is calculated as the option price minus the excess of the market price over the exercise price, if any. Thus, the call option provides the investor a gain of $8 ($8 – $0). The amount of gain and loss on a put option for the buyer is calculated as the excess of the exercise price over the market price minus the option price. Thus, the put option provides the investor a gain of $5 [($50 – $35) – $10)]. The total profit on the combined option position is $13 ($8 gain + $5 gain).