Question
Despite Teslas poor performance recently, you believe it can go lower still. You decide to short a single share of Tesla stock (TSLA). It is
Despite Teslas poor performance recently, you believe it can go lower still. You decide to short a single share of Tesla stock (TSLA). It is currently valued at $123.22 per share. In 1 month, TSLA will have their next earnings announcement, and you are hoping they will not meet analysts expectations. Assume you have an interest rate of r = 0.045 (4.5%) per annum, and that all interest is compounded continuously. (a) Create a payoff and profit diagram for this transaction. Be sure to indicate your max profit and max loss and to label all axis. (b) On the earnings call, what price does TSLA need to reach for you to break even? (c) Rising lithium prices cause TSLAs earnings to plummet. Their share price is currently $112.42. What is your payoff and what is your profit? (d) Ellon Musk tweets that Tesla will now accept Dogecoin as payment and the internet goes wild. TSLA price jumps to 133.69 per share. What is your total payoff and total profit? no
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