Question
A trader has asked you to construct a portfolio using a combination of shares and call options with exercise price 150. The current market price
A trader has asked you to construct a portfolio using a combination of shares and call options with exercise price 150. The current market price of a share is 60 and call options with exercise price 150 have a market price of 40. The final portfolio must meet the following requirements: the trader would like the initial investment in the portfolio to be zero; the portfolio should make as much profit as possible for large values of ST ; the trader will not accept losses that are larger than 1500. State the portfolio that fits the requirements and sketch the resulting payoff at maturity
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