Question 25

Suppose that on October 9, 2013 the price of a share of Jumbo Airlines is AED 100. The option price of a European 2-year (exercise date October 8, 2015) put option on a share of Jumbo Airlines with strike price AED 102 is 50 fills. The option price of a European 2-year (exercise date October 8, 2015) call option on a share of Jumbo Airlines with strike price AED 102 is 40 fills. Mr. Talha and Mr. Waleed are two investors who hold same amount of AED10,200 before entering into trades. Mr. Talha prefers to invest all the money in LONG PUT options, while Mr. Waleed in determined to use whole amount of money in the LONG CALL options. How many options Mr. Talha and Mr. Waleed will trade? What will be the payoffs of Mr. Talha and Mr. Waleed if the spot price of Jumbos share changes to AED 105 on October 8, 2015?