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The price of a stock is currently $55. The price o...

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The price of a stock is currently $55. The price of a one-year European call option on the stock with a strike price of 55 is quoted as $15 and the price of a one-year European call option on the stock with a strike price of $45 is quoted as $12. Q1: Suppose that an investor buys 100 shares of stock, shorts 100 call options, and buys 100 put options. Construct a table showing the investor?s profit or loss as a function of the stock price. Hints: To answer this, construct a column in Excel of stock prices ranging from $10 to $100 in increments of 1. Then use the next 3 columns to calculate the stock, put, call profits (one column for each position). Then add the profits from the three positions (stock, put, call). Finally, use Excel to graph the portfolio profit (y-axis) as a function of stock price (x-axis). Specifically, use scatterplot in Excel. If you don?t know how, then type ?scatterplot? in Excel help and follow the instruction. Your profit plot for the put option should look similar to Figure 9.2 in page 208. Q2: Suppose that an investor buys 100 shares, shorts 200 call options, and buys 200 put options. Construct a table showing the investor?s profit or loss as a function of the stock price. Graph the portfolio profit as a function of stock price. The total profit should look like a zigzag (down/up/down) pattern.

 

Paper#4136 | Written in 18-Jul-2015

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