Question

g) European call with a strike price of $40 costs $7. European put with the same strike price and expiration date costs $6. Assume that you buy two calls and one put (strap strategy). Sketch the graph and write down functions of payoff and profit h) Consider a stock with a price of $50 and there is European put option on that stock with the strike of $55 and premium of $4. Assume that you buy 1/3 of a stock and buy 2/3 of a put. Sketch the graph and write down functions of payoff and profit Consider a stock with a price of $60 and there is European call option on that stock with the strike of $55 and premium of $5. Assume that you sell 1/2 of a stock and buy one call option. Sketch the graph and write down functions of payoff and profit.

Answer 1

g) max(0,40-Price) + max(0,Price-40)*2 - 14 - 6

Profit 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60

h) (Price - 50)/3 + max(0,(55 - Price))*2/3 - 4*2/3

-2.00 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

i) max(0, (Price-55))/2 + 30 - min (Price, 55)/2 - 5

| -4 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74