Use the following option prices for options on a stock index that pays no dividends to answer questions. The options have three months to expiration, and the index value is currently 1,000.

Requirements:

a. In order to create a synthetic long forward with a price of 975, what options need ?to be bought or sold? What is the total price of those trades?

b. An investor buys the index and buys a 975 put. What is the name of this position ?and what are the minimum and maximum profits (or losses) on the position? ?

c. An investor buys a 975-strike call and sells a 1025-strike call. What is the name ?of this position and what are the minimum and maximum profits (or losses) on the position? ?

d. An investor buys the index, buys a 975-strike put and sells a 1025-strike call. What ?is the maximum profit? ?

e. An investor buys a 975-strike put and a 975-strike call. What is the name of this ?position and what is the maximum profit? ?

Transcribed Image Text:

STRIKE (K) 975 1000 1025 CALL PRICE 77.716 64.595 53.115 PUT PRICE 43.015 X 67.916 STRIKE (K) 975 1000 1025 CALL PRICE 77.716 64.595 53.115 PUT PRICE 43.015 X 67.916

Answer rating: 100% (QA)

a To create a Synthetic long forward position in stock with a price of 975 Long one 975 call option ... View the full answer