Question
The common stock of Careplus Ltd. is currently trading at a price of $42. Both a put and a call option are available for Careplus,
The common stock of Careplus Ltd. is currently trading at a price of $42. Both a put and a call option are available for Careplus, each having an exercise price of $40 and an expiration date in exactly six months. The current market prices for the put and call are $1.45 and $3.90, respectively. The risk-free holding period return for the year is 8 percent. Draw a graph of these payoff relationships under these trading strategy for the Careplus Ltd. prices of 20, 25, 30, 35, 40, 45, 50, 55, 60.
(1) buy one Careplus call option, and, (2) short one Careplus call option
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