Question
A six month call with a strike price of $60 costs $6. A six month put with a strike price of $40 costs $3. The
A six month call with a strike price of $60 costs $6. A six month put with a strike price of $40 costs $3. The current stock price is $50. A trader uses the options and stock to create a strategy that requires long 60 shares, short 100 call options, and long 100 put options.
a. What is the breakeven stock price, below which the trader will lose money?
b. What is the breakeven stock price, above which the trader will lose money?
c. What is the breakeven stock price, above which the trader makes a profit?
d. What is the breakeven stock price, below which the trader makes a profit?
Please show work and explain in detail how you arrived at your answers so I can understand it better for both A, B, C and D. Thank you. It would help me a lot.
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