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February 7th, 2019
A call with a strike price of $100 costs $6. A put with a strike price of 90 and the same maturity costs $4. Both will mature in three months. A trader buys both the call and the put simultaneously. Relative to this given data, complete the following 3 questions. i have attached the doc file here.
A call with a strike price of $100 costs $6. A put with a strike price of 90 and the same maturity costs $4. Both will mature in three months. A trader buys both the call and the put simultaneously.
- Present the profit/loss at maturity from this strategy in the following table.
Stock Price at Maturity, ST | ||||
ST< 90 | 90£ ST£ 100 | ST> 100 | ||
1 | Payoff from the call (excluding premium) | |||
2 | Payoff from the put (excluding premium) | |||
3 | Net profit
(including premium) |
- Draw a diagram to show the variation of the profit with the stock price at maturity.
- For what range of stock prices would the strategy lead to a profit? Explain when the trader should use this strategy.