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The price of a stock is R40. The price of a 1-year European put option on the stock with a strike of R30 is quoted
The price of a stock is R40. The price of a 1-year European put option on the stock with a strike of R30 is quoted as R7 and the price of a 1-year European call option on the stock with a strike of R50 is quoted as R5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. (i) Draw a diagram illustrating how the investor's prot or loss varies with the stock price over the next year. (ii) How does your answer change if the investor buys 100 shares, shorts 200 call options, and buys 200 put options
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