Question: 9. a. I have a long position in a put option on with an exercise price of $2.2/ and a long position in a call

a. I have a long position in a put option on with an exercise price of $2.2/ and a long position in a call option on with an exercise price of $2.4/. I paid $0.10/ for each option. Draw the combined graph. What is the name of this strategy?

b. I have a short position in a put option on with an exercise price of $2.2/ and a short position in a call option on with an exercise price of $2.4/. I received $0.15/ for each option. Draw the combined graph. What is the name of this strategy?

c. If I have both of these strategies together (part a and part b), how will my combined (4 options) graph look like? What is my loss/profit if ST = $1.8/? What is my loss/profit if ST = $2.5/?

d. Did I make a good or a bad decision when I combined both strategies? What is the advantage or disadvantage of combining these two strategies?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

9. a. I have a long position in a put option on with an exercise price of $2.2/ and a long position in a call option on with an exercise price of $2.4/. I paid $0.10/ for each option. Draw the...

1. I have a long position in a put option on with an exercise price of $2.2/ (premium=$0.10) and a long position in a call option on with an exercise price of $2.32/ (premium=$0.07). Draw the...

Use the figure for the question(s) below. This graph depicts the payoffs of: This graph depicts the payoffs of: A. a long position in a put option at expiration B. a long position in a call option at...

6. I have a long position in a put option on with an exercise price of $2.2/ (premium=$0.10) and a long position in a call option on with an exercise price of $2.32/ (premium=$0.07). Draw the...

I have a long position in a put option on with an exercise price of $2.2/ (premium=$0.10) and a long position in a call option on with an exercise price of $2.32/ (premium=$0.07). Draw the combined...

1. Consider the 5 components of an information system provided in Figure 1-1 in Chapter 1. Which of these components was the reason for the lack of success in the first round of ERP implementation at...

Selected accounts of Blume Irrigation System at December 31, 2012, follow: Requirements 1. Prepare the companys classified balance sheet in report form at December 31, 2012. 2. Compute the companys...

Stocks typically trade in what P / E range? Between 1 0 and 2 0 Between 1 0 and 3 0 Between 2 0 and 3 0 Between 2 0 and 4 0 .

5. Develop a scenario comparing two PH programs and involving the use of a CBA.

1 Learning from some of the measures taken by Eskom, AECI and Germiston City Council, what could a foreign company like Colgate Palmolive do to contribute to the development of human potential within...

Achievementascription. Quite often more traditional societies accord status according to ascription. Again, this may influence recruitment and promotion policies that may be at variance with...

Indian managers at both middle and senior levels in organizations profess a belief in group-based, participative decision making, but have little faith in the capacity of workers for taking...