Question: Question 5 (17 marks) Carmen constructs an options portfolio based on the BBG stock. She buys a BBG put option with exercise price $75 and

Question 5 (17 marks) Carmen constructs an options portfolio based on the BBG stock. She buys a BBG put option with exercise price $75 and buys a BBG call option with exercise price $80. Both options have the same expiration date. Put Call Option price $3.1 $1.6 Exercise price $75 $80 a. What will be the profit/loss on this position if BBG is selling at $77 on the option expiration date? What if BBG is selling at $86? (6 marks) b. At what two stock prices will Carmen break even on her position? (4 marks) c. Draw the profit diagram of this portfolio at option expiration as a function of BBG stock price at that time. (5 marks) d. What is Carmen expectation to justify this position? (2 marks)

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