Question: Question 4 In trading businesses, one can construct a so-called 'synthetic long stock' portfolio by buying a call and selling a put of the same

Question 4 In trading businesses, one can construct a so-called 'synthetic

Question 4 In trading businesses, one can construct a so-called 'synthetic long stock' portfolio by buying a call and selling a put of the same strike price/level. (a) Draw the payoff diagram of such a synthetic long stock portfolio. Explain why such a strategy is called 'synthetic long stock'. (b) Why do people adopt this strategy instead of purchasing one share of the underlying stock? (c) Besides margin requirements, can you write down another potential cost incurred when one purchases a unit of synthetic long stock portfolio

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