Question

1. You buy a share of BP stock for 150, and a six-month call option at 160 for 9.83. You sell a six month put option at 150 for 11.12.   You hold your portfolio until the expiration date. On the expiration date you cash out your portfolio. Graph the profits of your strategy as the price of BP stock at the expiration date goes from 125 to 200. Profits equal the amount you receive at the expiration date for cashing out your portfolio minus the amount you paid for the portfolio.

(Please include a table with at least 50 data points for the graph.)

Answer 1

	Payoff on Stock Purchased at 150:
	Assume ,Price at expiration =S
	Payoff =(S-150)
	Payoff on Buying (Long ) CALL Option
	Strike Price=160
	Price at expiration =S
	If S< or= 160, Payoff=0
	If S>160, Payoff=(S-160)
	Payoff on SELLING (Short) PUT Option
	Strike Price=150
	Price at expiration =S
	If S> or= 150, Payoff=0
	If S<150, Payoff=(S-150)
	Premium Paid for CALL Option	-9.83
	Premium Received for PUT Option	11.12
	Net Premium Received	1.29
		Pay off
	S	A	B	C	D=A+B+C+1.29
	Price at Expiration	Long Call	Short Put	Stock	Net Profit
	125	0	-25	-25	-48.71
	126	0	-24	-24	-46.71
	127	0	-23	-23	-44.71
	128	0	-22	-22	-42.71
	129	0	-21	-21	-40.71
	130	0	-20	-20	-38.71
	131	0	-19	-19	-36.71
	132	0	-18	-18	-34.71
	133	0	-17	-17	-32.71
	134	0	-16	-16	-30.71
	135	0	-15	-15	-28.71
	136	0	-14	-14	-26.71
	137	0	-13	-13	-24.71
	138	0	-12	-12	-22.71
	139	0	-11	-11	-20.71
	140	0	-10	-10	-18.71
	141	0	-9	-9	-16.71
	142	0	-8	-8	-14.71
	143	0	-7	-7	-12.71
	144	0	-6	-6	-10.71
	145	0	-5	-5	-8.71
	146	0	-4	-4	-6.71
	147	0	-3	-3	-4.71
	148	0	-2	-2	-2.71
	149	0	-1	-1	-0.71
	150	0	0	0	1.29
	151	0	0	1	2.29
	152	0	0	2	3.29
	153	0	0	3	4.29
	154	0	0	4	5.29
	155	0	0	5	6.29
	156	0	0	6	7.29
	157	0	0	7	8.29
	158	0	0	8	9.29
	159	0	0	9	10.29
	160	0	0	10	11.29
	162	2	0	12	15.29
	164	4	0	14	19.29
	166	6	0	16	23.29
	168	8	0	18	27.29
	170	10	0	20	31.29
	172	12	0	22	35.29
	174	14	0	24	39.29
	176	16	0	26	43.29
	178	18	0	28	47.29
	180	20	0	30	51.29
	184	24	0	34	59.29
	192	32	0	42	75.29
	196	36	0	46	83.29
	200	40	0	50	91.29