A trading strategy called INVE3000 strategy, is created by taking two long calls (with strike K1, premium C1), one short put (with strike K2 and premium P2), and one long put (with strike K3 and premium of P3). We know that K1 < K2 < K3. Please express the break-even stock prices using K1, K2, K3 and C1, P2, P3.
Break-Even Stock Prices:
Break-even referes to the point where there is no profit and no loss, which means total expenses will be equal to the total revenue.
For a Call Option, Break-even Price is given as:
BreakEven Call = Strike Price + Premium
For a Put Option, Break-even Price is given as:
BreakEven Put = Strike Price - Premium
Given: INVE3000 strategy
Two long calls (with strike K1, premium C1),
BreakEven Call = Strike Price + Premium
BreakEven Call = K1+C1
One short put (with strike K2 and premium P2),
BreakEven Put = Strike Price - Premium
BreakEven Put = K2-P2
One long put (with strike K3 and premium of P3).
BreakEven Put = K3-P3
Hence, the Break-even stock Prices are - K1+C1, K2-P2, K3-P3
Get Answers For Free
Most questions answered within 1 hours.