3. Suppose a trader sells a stock short at $70, buys a call option on the...
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3. Suppose a trader sells a stock short at $70, buys a call option on the same stock with strike X=80 and invests the proceeds at r= 0%. Does this trader always make a profit if call price c is higher than $8? Explain by writing the trader's profits. 4. A trader who owns one share of a stock buys a put option on the same stock with strike price X=50 and sells a call option on the same stock with strike price X=60. Excluding the initial cost, find the payoff range that this position can generate at expiration date. That is find If ST < 50 If 50 < ST < 60 Payoff=? Payoff=? Payoff=? If ST > 60 3. Suppose a trader sells a stock short at $70, buys a call option on the same stock with strike X=80 and invests the proceeds at r= 0%. Does this trader always make a profit if call price c is higher than $8? Explain by writing the trader's profits. 4. A trader who owns one share of a stock buys a put option on the same stock with strike price X=50 and sells a call option on the same stock with strike price X=60. Excluding the initial cost, find the payoff range that this position can generate at expiration date. That is find If ST < 50 If 50 < ST < 60 Payoff=? Payoff=? Payoff=? If ST > 60
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Solution Does the trader always make a profit if call price c is higher than 8 Answer No the trader ... View the full answer
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