Answered step by step
Verified Expert Solution
Question
1 Approved Answer
A 1-year European put option on a stock with strike price of $50 is quoted as $7; a 1-year European call option on the same
A 1-year European put option on a stock with strike price of $50 is quoted as $7; a 1-year European call option on the same stock with strike price $30 is quoted as $5. Suppose you long one put and short one call (one option is on 100 share).
a) Draw the payoff diagram for your put position and call position. (5 points)
b) After 1-year, stock price turns out to be $45. What is your total payoff? What is your total profit/loss?
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