Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A trader buys a put option with strike $85 and buys a call option with a strike of $95, both with the same maturity T,

A trader buys a put option with strike $85 and buys a call option with a strike of $95, both with the same maturity T, with 2 months to expiration. The call option trades at $4 and the put option trades at $4.50. The current share price is $90. Assuming the trader holds this until maturity, to time T, draw a diagram of the final payoff profile This diagram requires that you label axes, and note the breakeven share prices on an axis, the strikes, as well as note the maximum loss level on an axis. The position is a type of option combination, what is this type of combination called? Is the traders overall position long or short volatility?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions

Question

How to find if any no. is divisble by 4 or not ?

Answered: 1 week ago

Question

Explain the Pascals Law ?

Answered: 1 week ago

Question

What are the objectives of performance appraisal ?

Answered: 1 week ago