Suppose you write a June expiration call option on Tesla with exercise price $85 and at the
Question:
Suppose you write a June expiration call option on Tesla with exercise price $85 and at the same time, write a June Tesla put option with exercise price $80. The premium of the call option is $0.90 and the premium of the put option is $0.47. Assume Tesla will not pay any dividendbefore these optionsexpire in June.
1. Draw the payoff of this option portfolio at option expiration as a function of Tesla stock price at that time.
2. What will be the profit/loss on your option portfolio if Tesla is selling at $83 on the option expiration date? What if Tesla is selling at $90?
3.At what two stock prices will you just break even on your investment?
4. What kind of "bet" is this investor making, that is, what must this investor believe about Tesla's stock price to justify this position?
Expert Answer:
Option Portfolio Payoff Diagram Refer to the image link below to see the graphical representation of ... View the full answer
