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The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $40 is
The price of a stock is $40. The price of a one-year European put option on the stock with a strike price of $40 is quoted as $8 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5. Suppose that an investor shorts 100 shares, buys 200 call options, and shorts 200 put options. a) Draw a diagram illustrating how the investor's profit or loss varies with the stock price over the next year. b) Construct the Profit table c) In what range of share price, this investor will make a profit? Why a trader would take this strategy? d) At what stock price that this investor will have a maximum profit? How much is the profit
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