Question
1. The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30
1.
The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. What is the investor's P&L if the share price is $40 at the expiration date of options? (Loss is written in negative number)
2. Consider the setting of the previous problem but now assume that the investor buys 100 shares, shorts 200 call options, and buys 200 put options. What is the investor's P&L if the share price is $56 at the expiration date of options? (Loss is written in negative number) 3.
A stock index fund is currently selling for $400 per share. Investor A implements the protective put strategy by buying the fund share and at-the-money put option, which costs $20. Investor B implements the same strategy but uses a put option with a strike price of $390, which costs $15. Find share price at the maturity where each investor performs the same.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started