Jack buys an asset for $80. To hedge its risk, Jack buys a one year put option for $2 with the strike price of $80 on the same asset.

Draw both positions (long position in the asset and the long put option) on the same graph.

Graph: Label all points

What are the value of Jack's investment (both his asset and the put) for 0 ST  $80, 80 ST ST > $82 at the expiration of this option? Assume 0% interest rate. 

What type of contract is the combined (total) positions (draw the combined position on the same graph)?

  

Transcribed Image Text:

Os. N*= OF h*xVP; N° = BP FXQF mxn 2 = (1+ APR)* - 1; N m EAR Formulas: h*=p- A(re) = ß ; F₁,r=Soe(r-a)T; F = SoerT; F = (S-1)erT; N* = PxDp; A (market) FCXDF AP=-PxDpx Ay; C =r=q+u; C = r₁=rg; AFC =-FcxDxAy; F = (S₁)e(r +u-y)T; F ( § ) = So (§ )e('s-¹e)¹ ; F = (So + U)e²T ; VE F SXQAN* = PP 12 = P -; VF = Fx250; A n1 112 -1 xn₂; Rc ; Re-mix(1 + R) m =m In 1+ m -1; N = (ß - B *) P/A.; N = (ß * -ß ) P/A; b=S₁-F₁ Os. N*= OF h*xVP; N° = BP FXQF mxn 2 = (1+ APR)* - 1; N m EAR Formulas: h*=p- A(re) = ß ; F₁,r=Soe(r-a)T; F = SoerT; F = (S-1)erT; N* = PxDp; A (market) FCXDF AP=-PxDpx Ay; C =r=q+u; C = r₁=rg; AFC =-FcxDxAy; F = (S₁)e(r +u-y)T; F ( § ) = So (§ )e('s-¹e)¹ ; F = (So + U)e²T ; VE F SXQAN* = PP 12 = P -; VF = Fx250; A n1 112 -1 xn₂; Rc ; Re-mix(1 + R) m =m In 1+ m -1; N = (ß - B *) P/A.; N = (ß * -ß ) P/A; b=S₁-F₁

Answer rating: 100% (QA)

Long Asset Position Value 0 80 Strike Price ... View the full answer