An investor buys 100 shares of a stock, shorts 60 call options on the stock with...

An investor buys 100 shares of a stock, shorts 60 call options on the stock with strike price of $20 and buys 60 put options on the stock with strike price of $10. All options are one-year European options. Draw a diagram illustrating the value of the investor’s portfolio as a function of the stock price after one year.

Expert Solution

the value of the investor’s portfolio as a function of the stock price, S after one year = 100 x S - 60 x max (S - K1, 0) + 60 x max (K2 - S, 0) = 100S - 60 x max (S - 20, 0) + 60 x max (10 - S, 0)

Stock Price, S	Value
-	600
5	800
10	1,000
15	1,500
20	2,000
25	2,200
30	2,400
35	2,600
40	2,800
45	3,000
50	3,200

And the diagram will be:

jeff jeffy answered 2 years ago

An investor buys 100 shares of a stock, shorts 50 call options on the stock with...

An investor buys 100 shares of a stock, shorts 50 call options on the stock with strike price of $80 and buys 50 put options on the stock with strike price of $40. All options are one-year European options. Draw a diagram illustrating the value of the investor’s portfolio as a function of the stock price after one year.

An investor longs 1 call options with strike at K1, shorts 2 call options with strike...

An investor longs 1 call options with strike at K1, shorts 2 call options with strike at K2, and longs a call options with strike at K3. Given K1<K2<K3, please draw the payoff patter of these positions

An investor shorts 100 shares of a stock at $52 per share with initial margin of...

An investor shorts 100 shares of a stock at $52 per share with initial margin of 50% and no interest. The maintenance margin is 30%. Suppose the closing prices for the stock over the next three days is $56, $60 and $58. What are the values for margin and equity in the investor’s account at the end of day three?

Molly shorts 100 shares of a non-dividend-paying stock at the initial stock price of $60 per...

Molly shorts 100 shares of a non-dividend-paying stock at the initial stock price of $60 per share. She invests the proceeds at the continuously compounded risk-free interest rate of 0.05 in a savings account. She does not make any subsequent withdrawals from or deposits to this account until the short sale is closed. When Molly closes the sort sale, six months later, the stock price is $55. Does she have enough money in the savings account to be able to...

An investor buys 100 shares in a mutual fund on January 1, 2012, for $60 each....

An investor buys 100 shares in a mutual fund on January 1, 2012, for $60 each. The fund earns dividends of $2.50 and $4 per share during 2012 and 2013. These are reinvested in the fund. Its realized capital gains in 2012 and 2013 are $4 per share and $5 per share, respectively. The investor sells the shares in the fund during 2014 for $70 per share. Explain how the investor is taxed.

An investor buys 100 shares of Abbott Labs at $85 and buys one $75 put on...

An investor buys 100 shares of Abbott Labs at $85 and buys one $75 put on Abbott for $2. If Abbott goes to zero, what is the profit or loss on these positions? If Abbott goes to $100 on the option expiration date, what is the investor’s dollar gain or loss on these positions? What option strategy would the investor take if he did not want to pay for the put? What are the disadvantages of this strategy?

An investor buys a European call on a share for $5. The current stock price is...

An investor buys a European call on a share for $5. The current stock price is $102 and the strike price is $100. (a) Under what circumstances will the investor make a profit (have positive profit) on the expiration date? (b) Under what circumstances will the option be exercised on the expiration date? (c) Please draw a diagram showing how the investor’s profit depends on the stock price on the expiration date. To put it another, draw a diagram showing...

Investor buys 200 shares of stock at $27.25 per share. Investor sells the stock after one...

Investor buys 200 shares of stock at $27.25 per share. Investor sells the stock after one year. 1. What is the dollar amount of gain and the percent of return if the stock is sold for $32.60 per share? How much does the yield percentage increase to if the stock received a per share dividend of $1.15 during the year? 2. What is the dollar amount of loss and percentage of return if the stock received a per share dividend...

An investor buys a stock for $40 per share and simultaneously sells a call option on...

An investor buys a stock for $40 per share and simultaneously sells a call option on the stock with an exercise price of $42 for a premium of $3 per share. Ignoring the dividends and transaction costs, what is the maximum profit the writer of this covered call can earn if the position is held to expiration?

An investor buys three shares of XYZ at the beginning of 2002 for $100 apiece. After...

An investor buys three shares of XYZ at the beginning of 2002 for $100 apiece. After one year, the share price has increased to $110 and he receives a dividend per share of $4. Right after receiving the dividend, he buys two additional shares at $110. After another year, the share price has dropped to $90, but the investor still receives a dividend per share of $4. Right after receiving the dividend, he sells one share at $90. After another...

Question