An investor sells a European call option with strike price of E and maturity T and...

An investor sells a European call option with strike price of E and maturity T and buys a put with the same strike price and maturity on the same underlying asset.

a.Create a payoff table of this position at expiration

b. Show this payoff on a graph

Solutions

Expert Solution

Payoff of a short call option = -max(St - E, 0)

Payoff of a long put option = max(E - St, 0)

The payoff of this position at expiry is the sum of these two payoffs = -max(St - E, 0) + max(E - St, 0)

Screenshot with formulas

Can you please upvote? Thank You :-)

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

1. An investor sells a European call option with strike price of E and maturity and...

1. An investor sells a European call option with strike price of E and maturity and buys a put with the same strike price and maturity on the same underlying asset. a. Create a payoff table of this position at expiration b. Show this payoff on a graph

If we write a European call option on €, the strike price is $1.2141/€. The option...

If we write a European call option on €, the strike price is $1.2141/€. The option premium is $0.0500/€. On the expiration date, the market spot price is $1.3262/€. Then__ A. The option is exercised, and we lose $0.0621/€. B. The option is not exercised, and we profit $0.0500/€ C. The option is exercised, and we lose $1.2762/€. D. The option is not exercised, and we profit $0.1121/€

A call option with strike price of $100 sells for $3 whereas a call option with...

A call option with strike price of $100 sells for $3 whereas a call option with strike price of $106 sells for $1. A ratio spread is a portfolio with the following characteristics: long on one call with Strike K1, shirt on 2 calls with Strike K2 (where K2>K1), Thsm, you create a ratio spread by buying one call option with the strike price of $100 and writing two call options with the strike price of $106. 1) perform a...

A European call option and put option on a stock both have a strike price of...

A European call option and put option on a stock both have a strike price of $21 and an expiration date in 4 months. The call sells for $2 and the put sells for $1.5. The risk-free rate is 10% per annum for all maturities, and the current stock price is $20. The next dividend is expected in 6 months with the value of $1 per share. (a) describe the meaning of “put-call parity”. [2 marks] (b) Check whether the...

A European call option and put option on a stock both have a strike price of...

A European call option and put option on a stock both have a strike price of $21 and an expiration date in 4 months. The call sells for $2 and the put sells for $1.5. The risk-free rate is 10% per annum for all maturities, and the current stock price is $20. The next dividend is expected in 6 months with the value of $1 per share. (a) In your own words, describe the meaning of “put-call parity”. (b) Check...

The price of a European call option on anon-dividend-paying stock with a strike price of...

The price of a European call option on a non-dividend-paying stock with a strike price of 50 $ is 6 $. The stock price is 51 $, the continuously compounded risk-free rate for all maturities is 6% and the time to maturity is one year. What is the price of a one-year European put option on the stock with a strike price of 50 $?

The price of a European call option on a non-dividend-paying stock with a strike price of...

The price of a European call option on a non-dividend-paying stock with a strike price of $50 is $6 and the stock price is $52. The continuously compounded risk-free rate is 3% and the time to maturity is six months. What is the price of a six-month European put option on the stock with a strike price of $50?

Suppose that a 6-month European call A option on a stock with a strike price of...

Suppose that a 6-month European call A option on a stock with a strike price of $75 costs $5 and is held until maturity, and 6-month European call B option on a stock with a strike price of $80 costs $3 and is held until maturity. The underlying stock price is $73 with a volatility of 15%. Risk-free interest rates (all maturities) are 10% per annum with continuous compounding. (a) Construct a butterfly spread with the two kinds of options....

Suppose that a 6-month European call A option on a stock with a strike price of...

A call option on the SGD with a strike price of 0.73 USD/SGD and a maturity...

A call option on the SGD with a strike price of 0.73 USD/SGD and a maturity of 6 months has a premium bid price of 0.07 USD, and a 1penny bid-ask spread. If you sell these options today on 10,000 SGD, and at maturity the SGD is quoted at bid price of 0.89 USD/SGD, with a 1 penny bid-ask spread, what is your net profit on this position? Note: pay careful attention to which side of the quote you will...

Subjects