Question
Draw the profit/loss diagram for an investor who shorts one share of stock and simultaneously buys one call option on that stock. The current price
Draw the profit/loss diagram for an investor who shorts one share of stock and simultaneously buys one call option on that stock. The current price of the stock is S0 = $20 per share. The option exercise price is X = $30. The call option price is CE = $5. (A.) What is this strategy called? (B.) Draw the profit/loss diagram for this strategy. [Instructions: On the same axes, separately draw the individual components (short stock and long call) as well as the combined result of these two components. be sure to label the axes, the breakeven points, and ALL the intercepts on both axes.]
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