Assume that an investor holds the following portfolio: short stock bought at a price 90$, long...
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Assume that an investor holds the following portfolio: short stock bought at a price 90$, long one 3- month maturity call option on the same stock with an exercise price of $88. a) Show the payoff structure of this portfolio at option expiration both numerically and graphically. (7 marks) b) Calculate the profit/loss on this position if stocks are selling at $80 on the option maturity date. Calculate the profit/loss on the position if the stocks are selling at $110. Call option premium is $5, while put option premium is $3. Ignore the transaction costs. (4 marks) c) Explain what kind of "bet" the investor is making. What must the investor in such a portfolio believe about the stock price to justify this position? (4 marke) Assume that an investor holds the following portfolio: short stock bought at a price 90$, long one 3- month maturity call option on the same stock with an exercise price of $88. a) Show the payoff structure of this portfolio at option expiration both numerically and graphically. (7 marks) b) Calculate the profit/loss on this position if stocks are selling at $80 on the option maturity date. Calculate the profit/loss on the position if the stocks are selling at $110. Call option premium is $5, while put option premium is $3. Ignore the transaction costs. (4 marks) c) Explain what kind of "bet" the investor is making. What must the investor in such a portfolio believe about the stock price to justify this position? (4 marke)
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a Payoff structure of portfolio Stock Price Numerical Payoff Diagram 110 ... View the full answer
Related Book For
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown
Posted Date:
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