The three fundamental profit equations for call, puts, and stock are identified symbolically in this chapter as

Question:

The three fundamental profit equations for call, puts, and stock are identified symbolically in this chapter as
II = NC [Max (0, ST - X) - C]
II = NP [Max (0, S - ST) - P]
II = ST - S0.
Prepare a single graph showing both the long and short for each profit equation above. Assume the positions are held to maturity. Therefore, you need to produce a total of three graphs. Describe the relationship between the long and short for each profit equation. Also describe the relationship between the call graph and the put graph.
The following option prices were observed for a stock for July 6 of a particular year. Use this information in problems 10 through 15. Ignore dividends on the stock. The stock is priced at 165.13. The expirations are July 17, August 21, and October 16. The continually compounded risk-free rates. The standard deviation is 0.21. Assume that true options are European.

In problems 10 through 15, determine the profits for possible stock prices of 150, 155, 160, 165, 170, 175, and 180. Answer any other questions as requested. Your Excel spreadsheet Option Strategy Analyzer 10ex.lsm will be useful here fore obtaining graphs as requested, but it does not allow you to calculate the profits for several user-specified asset prices. It permits you specify one asset price and a maximum and minimum. Use Option Strategy Analyzer 10e.xlsm to produce the graph for the range of prices from 150 to 180, but determine the profits for the prices of 150, 160, ...., 180 by hand for positions held to expiration.
For positions closed prior to expiration, use the spreadsheet Black Scholes Merton Binomial 10e.xlsm to determine the option price when the position is closed; then calculate the profit by hand.