ESSEN OF INVESTMENTS CONNECT AC
ESSEN OF INVESTMENTS CONNECT AC
11th Edition
ISBN: 9781266650314
Author: Bodie
Publisher: MCG
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Chapter 15, Problem 22PS

Consider the following options portfolio: You write a June 2 0 17 expiration call option on Microsoft with exercise price $ 72 . You also write a June expiration Microsoft put option with exercise price $ 7 0 . LO 15 2
a. Graph the payoff of this portfolio at option expiration as a function 0f the stock price at that time.
b. What will be the profit/loss on this position if Microsoft is selling at $ 7 0 on the option expiration date? What if it is selling at $ 74 ? Use option prices from Figure 15.1 to answer this question.
c. At what two stock prices will you just break even on your investment?
d. What kind of “bet” is this investor making; that is, what must this investor believe about the stock price in order to justify this position?

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