Strike Price |
Call Price |
Put Price |
95 |
7.05 |
1.81 |
100 |
4.11 |
3.86 |
105 |
2.14 |
6.88 |
2. Start with $0 in your account.
a) Short XYZ at $100 and use some of the cash to buy a 95 strike call, investing the rest in zero coupon bonds.
b) Construct profit and payoff graphs for this position (ignoring stock borrow fees).
c) Instead, borrow enough cash to buy the 95 strike put.
d) Construct profit and payoff graphs for this position. (Assume you pay interest r on your loan.)
a) Price of stock at expiration=S
Assume stock borrowing cost =$0
Short XYZ at$100 Long (Buy)
95 Strike Call Price = $7.05
Remaining cash available= (100-7.05)=$ 92.95
Payoff for shorting = 92.95-S
Invest 92.95 in Zero coupon bond
Payoff on long $95 strike call=(S-95)
if S>95 then payoff would look like below
Strike Price Call Price Put Price 95 7.05 1.81 100 4.11 3.86 105 2.14 6.88 2....
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