Question
a) You buy a 1-year put option and sell the corresponding call option. Both options are written on 1 share of IBM stock and both
a) You buy a 1-year put option and sell the corresponding call option. Both options are written on 1 share of IBM stock and both have an exercise price of $99. In addition, you also buy 1 share of IBM stock. What is the net payoff you receive from this 3-asset portfolio if at expiration the price of each share of IBM stock is $42?
b) Consider two "corresponding" options, consisting of a call and a put with the exact same parameter values. For this pair, the call premium is $3.2. If the current price of the underlying asset is $87 and the present value of the exercise price is $87, what is the premium of the put option, P? Write the answer with one decimal; e.g., 3.2. Do NOT use the $ symbol in your answer; just write a numerical value.
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