In excel, create a table with a portfolio’s profit for different prices of a stock- used...

In excel, create a table with a portfolio’s profit for different prices of a stock- used to create a protective put strategy. In this case, one put contract is used- of 50 stocks sold at $5/stock. Strike price = $50.

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Expert Solution

A protective put strategy consist of purchasing a Stock and going long on a Put option so as to cover up in case of any fall in share price. It serves as an insurance by protecting the downside along with enjoying the upside.
The maximum loss in a protective put is initial premium paid for put option because fall in share price is compensated by payoff from put option.

We assume purchase of a share price at $50 and purchase of a put contract consisting of 50 stocks at $5/stock i,e put premium paid is $250 for one contract (50 shares). Payoff and profit diagram on various maturity is as follows :

where Profit is calculated by :
Profit = Total Payoff - (Initial Investment in Shares + Put Premium paid)

jeff jeffy answered 2 years ago

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