Question
In: Finance
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
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jeff jeffy answered 2 years agoRelated Solutions
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