3. The price of a stock is $50. The price of a 1-year put option on the stock with a strike price of $40 is quoted as $10 and the price of a 1-year European call option on the stock with a strike price of $60 is quoted as $8. Suppose that an investor buys 50 shares, shorts 50 call options and buys 50 put options. Fill the table Please fill the table for 50 shares and 50 calls and 50 puts. $60 $45 Stock price (ST) in the market Profit for buying 50 shares of $25 $30 $40 $50 $55 stock Option value (Pay off) Short 50 calls Premium for 50 calls Profit from shorting 50 call options Option value (Pay off) Buy 50 puts Premium for 50 puts Profit from buying 50 put options TOTAL Profit
3. The price of a stock is $50. The price of a 1-year put option on the stock with a strike price of $40 is quoted as $10 and the price of a 1-year European call option on the stock with a strike price of $60 is quoted as $8. Suppose that an investor buys 50 shares, shorts 50 call options and buys 50 put options. Fill the table Please fill the table for 50 shares and 50 calls and 50 puts. $60 $45 Stock price (ST) in the market Profit for buying 50 shares of $25 $30 $40 $50 $55 stock Option value (Pay off) Short 50 calls Premium for 50 calls Profit from shorting 50 call options Option value (Pay off) Buy 50 puts Premium for 50 puts Profit from buying 50 put options TOTAL Profit
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![3. The price of a stock is $50.
The price of a 1-year put option on the stock with a strike price of $40 is quoted as $10 and
the price of a 1-year European call option on the stock with a strike price of $60 is quoted as $8.
Suppose that an investor buys 50 shares, shorts 50 call options and buys 50 put options. Fill the
table
Please fill the table for 50 shares and 50 calls and 50 puts.
田
Stock price (ST) in the market
Profit for buying 50 shares of
$25
$30
$40
$50
$55
$60
$65
stock
Option value (Pay off) Short
50 calls
Premium for 50 calls
Profit from shorting 50 call
options
Option value (Pay off) Buy
50 puts
Premium for 50 puts
Profit from buying 50 put
options
TOTAL Profit](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa03b5269-9fca-42c5-ba0e-331a06c196ba%2F5ad86bc1-2471-4ea8-845e-6fc0a2f32e13%2Fbpuo3ft_processed.jpeg&w=3840&q=75)
Transcribed Image Text:3. The price of a stock is $50.
The price of a 1-year put option on the stock with a strike price of $40 is quoted as $10 and
the price of a 1-year European call option on the stock with a strike price of $60 is quoted as $8.
Suppose that an investor buys 50 shares, shorts 50 call options and buys 50 put options. Fill the
table
Please fill the table for 50 shares and 50 calls and 50 puts.
田
Stock price (ST) in the market
Profit for buying 50 shares of
$25
$30
$40
$50
$55
$60
$65
stock
Option value (Pay off) Short
50 calls
Premium for 50 calls
Profit from shorting 50 call
options
Option value (Pay off) Buy
50 puts
Premium for 50 puts
Profit from buying 50 put
options
TOTAL Profit
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps with 2 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Essentials Of Investments](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260013924/9781260013924_smallCoverImage.jpg)
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
![FUNDAMENTALS OF CORPORATE FINANCE](https://www.bartleby.com/isbn_cover_images/9781260013962/9781260013962_smallCoverImage.gif)
![Financial Management: Theory & Practice](https://www.bartleby.com/isbn_cover_images/9781337909730/9781337909730_smallCoverImage.gif)
![Foundations Of Finance](https://www.bartleby.com/isbn_cover_images/9780134897264/9780134897264_smallCoverImage.gif)
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
![Fundamentals of Financial Management (MindTap Cou…](https://www.bartleby.com/isbn_cover_images/9781337395250/9781337395250_smallCoverImage.gif)
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
![Corporate Finance (The Mcgraw-hill/Irwin Series i…](https://www.bartleby.com/isbn_cover_images/9780077861759/9780077861759_smallCoverImage.gif)
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education