George Soros and Warren Buffet both believe the stock market is going down (i.e. stock prices will fall). Buffet decides to use an option strategy and Soros decides to use a forwards strategy. Currently, the stock market is priced at $200. A call option has a strike of $205 and costs $2. A put option has a strike of $195 and costs $3. The forward price is $201. Each investor uses the respective derivative strategy mentioned above. What is the profit/loss of each investor if the market finishes at $198?

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ProfitLoss Calculations for Soros and Buffet Market Price 200 Call Option Strike 205 Call Option Cos... View the full answer