Question: A trader creates one long strap from options with strike price $50 and will expire in six months. The current stock price is $50. The
A trader creates one long strap from options with strike price $50 and will expire in six months. The current stock price is $50. The call option price is $10.56. The risk-free interest rate is 10% p.a. (continuously compounded). What is the maximum net loss (after the cost of the options is taken into account) to set up this long strap? For simplicity, each option is linked to 1 share of the underlying stock.
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