Question

An investor purchased one 150 Dec Call and also purchased one 150 Dec Put. What is the name of this option strategy?

Answer 1

Ans.

The name of the option strategy is Arbitrage Strategy - people buy 2 portfolions and sells the one which is expensive one and the cheaper will be bought the difference between the two portfolios will the profit.

Example -

Stock price is 100

Portfolio A - 100 Call for $10, Bond for $98 = it will cost = 98 + 10 = $108

Portfolio B - 100 Put for $12 Stock which is $100 = 100 + 12 = $112

The profit will be = Portfolio B - Portfolio A = 112 - 108 = $4 will be the profit.

Note - both portfolio's should be equal in value , but by calculating theres a minute difference, and this difference is where the profit is.

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