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.

Expert Solution

Short Call payoff = -max(St - X, 0) * 50

Long Put payoff = max(X - St, 0) * 50

Screenshot with formulas

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jeff jeffy answered 1 year ago

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