The current price of ABC Inc. is $12 per share; put options and call options on the stock both have a strike price of $12 and are selling for $0.60 per option.

 a) Draw a well labelled net payoff diagram for the portfolio that includes 1 share of ABC Inc. and 1 put option
b) Draw a well labelled net payoff diagram for a portfolio that is short 1 call option and includes one share of stock.
c) Suppose on the expiration date the price of ABC Inc. ends up being $10 per share. What is the profit/loss on the portfolios in part a) and b).
d) Suppose someone had bought 50 call options and the price ends up being $10 per share. What would be the profit/loss on that?

Answer rating: 100% (QA)

a The net payoff diagram for the portfolio that includes 1 share of ABC Inc and 1 put option is as follows Price of Stock ABC Inc 0 Strike Price Expla... View the full answer