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The price of a stock is $40. The price of a one-year put with strike price $30 is $0.70 and a call with the same
The price of a stock is $40. The price of a one-year put with strike price $30 is $0.70 and a call with the same time to maturity and a strike of $50 costs $0.50. Both options are European.
(a) An investor buys one share, shorts one call and buys one put. Draw and comment upon the payoff of this portfolio at maturity as a function of the underlying price.
(b) How would your answer to (a) change if the investor buys one share, shorts two calls and buys two puts instead.
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