Question 1

For this question, please use Excel spreadsheet. Please note any Excel formulas used.

Explain and show on a diagram the profit at maturity from the following combinations of positions. Please show the profit from each option or stock and the profit from the combined position on ONE graph. You should have one graph each for part a and part b.

Please label carefully all turning points and profit levels. To find the future value, use continuous compounding, where r, risk-free interest is 1% annually and time to maturity is 15 days (Please use 360 days count in a year). All options expire at the same time. You can use ranges of $65, 66, 67, 68, 69...........$82 for DELL stock price at maturity.

DELL Stock Price Strike Expiration Call Premium Put premium

$71.76 $70 Sep $2.25 $0.45

71.76 75 Sep 0.10 3.40

71.76 80 Sep 0.05 8.30

1. Buy one 70 Sep put, buy one 80 Sep put, and short a round lot (100 shares) of the underlying stock
2. Buy one 75 Sep call and sell one 75 Sep put option.