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Roy constructs an options portfolio based on the MXC stock. He writes a call option with...

Roy constructs an options portfolio based on the MXC stock. He writes a call option with exercise price $74 and writes a put option with exercise price $70. Both options have the same expiration date.

   MXC Call MXC Put

Option price $0.42    $0.58

Exercise price $74     $70

a. Draw the payoff diagram of this portfolio at option expiration as a function of MXC stock price at that time.

b. What will be the profit/loss on this position if MXC is selling at $72 on the option expiration date? What if MXC is selling at $77?

c. At what two stock prices will Roy break even on his position?

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 1 year ago
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