Consider the following options portfolio. You write a January expiration call option on IBM with exercise price
Question:
Consider the following options portfolio. You write a January expiration call option on IBM with exercise price 130. You write a January IBM put option with exercise price 125.
a. Graph the payoff of this portfolio at option expiration as a function of IBM’s stock price at that time.
b. What will be the profit/loss on this position if IBM is selling at 128 on the option expiration date? What if IBM is selling at 135? Use The Wall Street Journal listing from Figure to answer this question.
c. At what two stock prices will you just break even on your investment?
d. What kind of “bet†is this investor making; that is, what must this investor believe about IBM’s stock price to justify thisposition?
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A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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a Position S T 125 125 S T 130 S T 130 Write call X 130 0 0 S T 130 Write put ...View the full answer
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