Question
Assume that you form the following option strategy: long a put option with strike price $47.5. This options premium is $5. short a put option
Assume that you form the following option strategy:
- long a put option with strike price $47.5. This options premium is $5.
- short a put option with strike price $45. This options premium is $3.
Assume that these two options will maturity on the same date.
Questions: (i) Please plot the payoff and profit diagram of your option strategy.
(ii) Assume that the underlying security of the put option (say Stock LUV) will have a stock price at $37, then how much is the profit of your strategy? Please show your calculation and also illustrate the profit on the payoff diagram.
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Bakers Health Care Finance Basic Tools For Nonfinancial Managers
Authors: Thomas K. Ross
6th Edition
1284233162, 978-1284233162
