Question
Suppose that you wish to make a bet on a stock (PLTR) as follows. (a) buy one share of PLTR at a current share price
Suppose that you wish to make a bet on a stock (PLTR) as follows.
(a) buy one share of PLTR at a current share price at $26.75.
(b) short four June 18 calls struck at K = $27.00 at $5.51 per call.
(c) Buy three June 18 calls struck at K = $30.00 at $4.60 per call.
For the purpose of this problem, assume the calls are European and assume you can buy a call on one share.
(a) Find the price of this option strategy on a per share basis.
(b) Compare this strategy to one where you simply invest 100% in PLTR. If PLTR goes to $27, which strategy has a higher return? What if PLTR goes to $30?
Step by Step Solution
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SOLUTION a To find the price of the option strategy on a per share basis we need to calculate the total cost of the strategy and then divide it by the number of shares which is 1 since we are buying o...
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Introduction To Derivatives And Risk Management
Authors: Don M. Chance, Robert Brooks
10th Edition
130510496X, 978-1305104969
