Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 1. Tesla stock (TSLA) is currently trading at $1200. You think it is overvalued and decide to short the stock. You're worried, however,

image text in transcribed

Question 1. Tesla stock (TSLA) is currently trading at $1200. You think it is overvalued and decide to short the stock. You're worried, however, that if the stock instead keeps going up, you could owe an arbitrarily large amount of money on this short position. (a) If you want to keep the short position but cap your possible losses at at most $300 a year from now, what option(s) should you add to your portfolio? 1 (b) Suppose instead that your broker will not sell you a short position in the stock, and is only offering (long or short) call options on the stock. Construct a portfolio whose payout is positive if and only if one year from now the stock price has dropped to between $600 and $800. (c) Now suppose your broker is only offering put options. Construct a portfolio with the same payout as that in (b).

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Venture capital and the finance of innovation

Authors: Andrew Metrick

2nd Edition

9781118137888, 470454709, 1118137884, 978-0470454701

More Books

Students also viewed these Finance questions

Question

Define success.

Answered: 1 week ago