You buy a share of Stock A (today) at a price of $25 a share. You would
Question:
You buy a share of Stock A (today) at a price of $25 a share. You would like to sell the share in three months if its price rises to $30 (and above). Both a call and a put are available (on Stock A) with an exercise price of $30. The options are European and expire in three months.
a) What strategy would you employ to force you to sell the share? What will you 'gain' from this strategy?
b)The total payoff on your overall strategy (or portfolio) in three months from today?
c) Draw the total payoff diagram for your overall strategy (or portfolio) in three months from today. Label your axes and mark them with appropriate values where necessary.
Essentials of Business Analytics
ISBN: 978-1285187273
1st edition
Authors: Jeffrey Camm, James Cochran, Michael Fry, Jeffrey Ohlmann, David Anderson, Dennis Sweeney, Thomas Williams