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(a) A "Long Call" is Port = CE. (b) A "Short Call" is Port = -CE. (c) A "Long Put" is Port = PE. (d) A "Short Put" is Port = -PE.

(a) A "Long Call" is Port = CE. (b) A "Short Call" is Port = -CE. (c) A "Long Put" is Port = PE. (d) A "Short Put" is Port = -PE.

Essentials Of Investments
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
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4. What follows are several portfolios; each is denoted by the term Port. Graph the profit curve at t = T for each of them. Determine the strengths and weaknesses of each portfolio. Namely, explain what a reasonable investor must be expecting to adopt each portfolio. In this listing, CE denotes a Call with strike price E, -CE represents going short on a Call-the Call was sold, PE is a put, -PE is going short on a put, and the numbers E indicate the strike price. (a) A "Long Call" is Port = CE- (b) A "Short Call" is Port = -CE. (c) A "Long Put" is Port = PE. (d) A "Short Put" is Port = - PE. (e) A "Long Straddle" is Port = PE + C£; namely, buy both a Put and Call with the same strike price. (f) A "Short Straddle" is Port = -P - C. (g) A "Long Strangle" is Port = P£₁ +C£₂; namely, it is a purchase of a put at strike price E₁, which is less than the strike price of a Call at E2 (h) a "Short butterfly" is Port = −CE₁ +2CE₂ - CE3 where E₁ < E₂ < E3. (i) A "Long butterfly" is Port = CE₁ -2CE₂ + CE3) where E₁ < E2 < E3. (j) A "Short Condor" is Port -CE₁ + CE₂ + CE3 - CE4 where E₁ < = E2 < E3 < E4. (k) A "Long Condor" is Port = CE₁-CE₂ - CE3 + CE4
Transcribed Image Text:4. What follows are several portfolios; each is denoted by the term Port. Graph the profit curve at t = T for each of them. Determine the strengths and weaknesses of each portfolio. Namely, explain what a reasonable investor must be expecting to adopt each portfolio. In this listing, CE denotes a Call with strike price E, -CE represents going short on a Call-the Call was sold, PE is a put, -PE is going short on a put, and the numbers E indicate the strike price. (a) A "Long Call" is Port = CE- (b) A "Short Call" is Port = -CE. (c) A "Long Put" is Port = PE. (d) A "Short Put" is Port = - PE. (e) A "Long Straddle" is Port = PE + C£; namely, buy both a Put and Call with the same strike price. (f) A "Short Straddle" is Port = -P - C. (g) A "Long Strangle" is Port = P£₁ +C£₂; namely, it is a purchase of a put at strike price E₁, which is less than the strike price of a Call at E2 (h) a "Short butterfly" is Port = −CE₁ +2CE₂ - CE3 where E₁ < E₂ < E3. (i) A "Long butterfly" is Port = CE₁ -2CE₂ + CE3) where E₁ < E2 < E3. (j) A "Short Condor" is Port -CE₁ + CE₂ + CE3 - CE4 where E₁ < = E2 < E3 < E4. (k) A "Long Condor" is Port = CE₁-CE₂ - CE3 + CE4
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