Question
Suppose you construct an option strategy consisting of a long position in one put option with price P=$10 and exercise price X1=$80, and a long
Suppose you construct an option strategy consisting of a long position in one put option with price P=$10 and exercise price X1=$80, and a long position in one call option with price C=$20 and identical expiration date and underlying stock, but higher exercise price X2=$105.
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Draw a diagram of the profit of this strategy. (5 marks)
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What is the maximum loss for this strategy? For which values of the underlying stock price it is achieved? (5 marks)
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Suppose that at expiration the stock price is ST=$140, what is the profit of the strategy at time T? (5 marks)
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Describe the characteristics of an investor who would like to sell this option strategy. (5 marks)
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