A put with an exercise price of 50 has a price of 6 and a call on
Question:
A put with an exercise price of 50 has a price of 6 and a call on the same stock with an exercise price of 60 has a price of 10. Both put and call have the same expiration date. On the same set of axes, draw the profit diagram for:
a. One put bought and one call bought.
b. Two puts bought and one call bought.
c. Three puts bought and one call bought.
d. All three lines cross each other for the same value of ST. Derive this value.
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Step by Step Answer:
A One Put Bought and One Call Bought The profit diagram for one put bought and one call bought will look like a butterfly shape The vertical axis will ...View the full answer
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