Question
[Intermediate Finance] Imagine that you are holding 1 share of stock, currently selling at $40 per share. You decide to use a collar to limit
[Intermediate Finance] Imagine that you are holding 1 share of stock, currently selling at $40 per share. You decide to use a collar to limit downside risk without laying out a good deal of additional funds by buying a put option with a strike price of $35, and writing a call option with a strike of $45. Assume for simplicity that each option contract is written on one share of the stock. Please fill in the following table for the payoff of your positions when the stock price at expiration is $30, $40, or $50. Round your answer to the nearest integer and use a minus sign if the payoff is negative.
Position: S(t)=$30 S(t)=$40 S(t)=$50
Stock: $______ $______ $_______
Buy put(X=$35): $______ $______ $_______
Write call (X=$45) $______ $______ $_______
Portfolio: $______ $______ $_______
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