The current price of a non-dividend paying stock is 40 and the continuously compounded risk-free rate of
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The current price of a non-dividend paying stock is 40 and the continuously compounded risk-free rate of return is 8%. You enter into a short position on 3 call options, each with 3 months to maturity, a strike price of 35, and an option premium of $6.13. Simultaneously, you enter into a long position on 5 call options, each with 3 months to maturity, a strike price of 40, and an option premium of $2.78. Assuming all 8 options are held until maturity, what is (i) the maximum possible profit and (ii) the maximum loss for the entire option portfolio?
Related Book For
An Introduction to the Mathematics of financial Derivatives
ISBN: 978-0123846822
2nd Edition
Authors: Salih N. Neftci
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