a) An investor wants to benefit from META price drops but does not want to lose more than $30 on the investment. (b) An investor wants to have a positive payoff if the upcoming META earnings announcement is close to market expectations—meaning that the price will not move by more than $20 dollars.
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2. Construct profit diagrams at expiration time to show what position in META puts, calls and/or underlying stock best expresses the investor’s objectives described below. META currently sells for $210 so that profit diagrams between $150 and $250 in $10 increments are appropriate. Assume that at-the-money puts and calls currently cost
$30 each. The call with strike $190 costs $40 and the call with strike $230 costs $20.
(a) An investor wants to benefit from META price drops but does not want to lose more than $30 on the investment.
(b) An investor wants to have a positive payoff if the upcoming META earnings announcement is close to market expectations—meaning that the price will not move by more than $20 dollars.
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