Question
You buy a share of Stock A (today) at a price of $25 a share. You would like to sell the share in three months
You buy a share of Stock A (today) at a price of $25 a share. You would like to sell the share in three months if its price rises to $30 (and above). Both a call and a put are available (on Stock A) with an exercise price of $30. The options are European and expire in three months.
a) What strategy would you employ to force you to sell the share? What will you 'gain' from this strategy?
b)The total payoff on your overall strategy (or portfolio) in three months from today?
c) Draw the total payoff diagram for your overall strategy (or portfolio) in three months from today. Label your axes and mark them with appropriate values where necessary.
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a To force yourself to sell the share if the price rises to 30 or above you can buy a put option wit...Get Instant Access to Expert-Tailored Solutions
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Essentials Of Business Analytics
Authors: Jeffrey Camm, James Cochran, Michael Fry, Jeffrey Ohlmann, David Anderson, Dennis Sweeney, Thomas Williams
1st Edition
128518727X, 978-1337360135, 978-1285187273
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