Question
An investor decided to choose between the following 2 strategies: a. Protective put: simultaneous purchase of shares and options for sale on these shares with
An investor decided to choose between the following 2 strategies: a. Protective put: simultaneous purchase of shares and options for sale on these shares with a maturity of 3 months and an exercise price of $ 780. The stock is currently selling for $ 900
b. Purchasing a 3-month buying option at an exercise price of $ 840 and at the same time purchasing a 3-month Treasury bond with a face value of $ 840
i- Construct a graph of the results of each strategy as a function of the share price ii- Which of the portfolios requires investment higher initial to be created iii- Assume that the market prices of the securities are presented as follows: Stock $ 900 Treasury bond (Nominal value = $ 840) $ 810 Buy option (X = $ 840) $ 120 Sale option ( X = $ 780) $ 6 Show on the chart the profits that can be realized in each portfolio if the stock prices after 3 months will be St = $ 700, $ 840, $ 900, and $ 960
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