Suppose you simultaneously purchase an underlying priced at $77 and a put option on it, with an exercise price of $75 and selling at $3

1. What is the term commonly used for the positions that you have taken?
2. Show the payoff and profit formula for this option strategy

Consider the following options portfolio. You write a January expiration call option in IMB with an exercise price of $195. You write a January IBM put option with an exercise price of $190.

1. What will be the profit/loss on this position if IBM is selling at $198 on the option expiration date? What if IBM is selling at $205?
2. At what two stock prices will you just break even on your investment?

Answer rating: 100% (QA)

Q1 a Protective put is the common name of the strategy where you buy both stock and put option Buy a ... View the full answer