You are long the following 1-year options: - 2 call options with K = 20 - 3
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Question:
- 2 call options with K = 20
- 3 call options with K = 30
- 4 call options with K = 40
a) You want to add positions in a 1-year K = 50 call option such that your overall payout at t = 1
will be the same for any value S1 ≥ 50 (In other words, the payout for S1 = 50 and beyond is a
flat line). How many K = 50 calls do you have to trade, and do you have to go long or short?
b) What is the overall payout at t = 1 for any value of S1 ≥ 50?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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