Question

PLEASE NOTE: I POSTED THIS QUESTION BEFORE BUT ONE EXPERT SIMPLY COPIED THE ANSWER TO ANOTHER QUESTION THAT WAS USING THE SAME INFORMATION.

WHAT I'M LOOKING FOR ARE 2 GRAPHS.

An investor is provided with the following information on American put and call options on a share of a company listed on the London Stock Exchange:

• Call price (c₀) = 33p
• Put price (p₀) = 49p
• Exercise price (X) = 480p
• Today: 11 June 2019
• Expiry date: 20 December 2019
• Current stock price (S₀) = 458p
• Risk-free interest rate (r) = 2.4%
• The company pays no dividends.

Draw a graph showing the prices at expiry of a fiduciary call and another one showing a protective put, including all of their components, in relation to the price of the stock in a range between 350p and 600p.

Answer 1

	FIDUCIARY CALL:
	Under this strategy you buy a CALL instead of the share
	The money saved by buying Call instead of share is invested at risk free rate
	Strategy of Fiduciary Call Option:
	1. Buy a CALL OPTION (pay premium =33p)
	2. Invest Present Value of Strike price at risk free rate
	This will enable excercising the option at expiration
	Exercise Price=480p
	Risk Free interest rate =2.4%
	Number of days to   expiry=192
	Years=192/365	0.526027
	Present Value of Exercise Price =480/(1.024^0.526027)=		474	p
	Invest 474 p at 2.4%)
	PAYOFF from CALL option:
	Price at expiration =S
	If S< or=480, Payoff =0
	If S>480, Payoff =(S-480)
	PAYOFF from Investment =480p
	Total Cost =474+33=507p
	S	A	B=A+480-507
	Price at Expiration(p)	Payoff Call Option	Net Profit(Fiduciary Call)
	350	0	-27
	375	0	-27
	400	0	-27
	425	0	-27
	450	0	-27
	475	0	-27
	480	0	-27
	500	20	-7
	507	27	0
	525	45	18
	550	70	43
	575	95	68
	600	120	93
	PROTECTIVE PUT
	Strategy:
	1. Buy one stock
	2. Buy one Put option toprotect against loss
	Cost of buying one stock=458p
	Cost of buying one Put=49p
	Total investment =458+49=	507	p			-8
	Payoff on Put Option:
	Price at expiration is=S
	If S> or=480, Payoff=0
	If S<480,Payoff =(480-S)
	Payoff on Stock= (S-458)
	S	A	B=A+S-507
	Price at Expiration(p)	Payoff PUT Option	Net Profit(Protective PUT)
	350	130	-27
	375	105	-27
	400	80	-27
	425	55	-27
	450	30	-27
	475	5	-27
	480	0	-27
	500	0	-7
	507	0	0
	525	0	18
	550	0	43
	575	0	68
	600	0	93