The price of a stock is $40. The Price of a 1-year European put option on the st

Question

The price of a stock is $40. The Price of a 1-year European put option on the stock with a strike price of $30 is quoted ad $7 and the price of a 1-year European call option on the stock with a strike price of $50 is quoted ad $5. Suppose that an investor buys 100 shares, shorts 100 call options, and buys 100 put options. You hold the stock and options until the option expiration date. a)If the stock price on the option expiration date is $30 per share, find the total profit (or loss) of your portfolio of stock and options. b)If the stock price on the option expiration date is $70 per share, what is the total profit (or loss) of the portfolio?

Explanation / Answer

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