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Problem 3 (25 points) Consider the following options portfolio. You write a 1-year expiration call option on stock A with exercise price $195 selling for
Problem 3 (25 points) Consider the following options portfolio. You write a 1-year expiration call option on stock A with exercise price $195 selling for $5. You write a 1-year put option on stock A with exercise price $185 selling for $3. (a) Construct the payoff table for this strategy. (8 points) (b) Draw the payoff diagram for this strategy as a function of the stock price at expira- tion. You need to mark some key points on the x-axis and y-axis. (8 points) (c) At what two stock prices will you just break even on your investment? (9 points)
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