Question

If you combine a long stock position with buying an at the money put option the...

If you combine a long stock position with buying an at the money put option the resulting net payoff profile will resemble the payoff profile of a _______.

long call

short call

short put

long put
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Long call :- Payoff = Max ( Stock price - Strike price, 0 )

Long stock and put :- Pay off = ( Stock price - purchase price ) + Max ( Strike price - stock price , 0 )

Purchase price = strike price [ at the money ]

If strike price >= stock price

Long call payoff = 0

Long stock and put payoff = Stock price - strike price + Strike price - stock price = 0

If strike price < stock price

Long call payoff = Stock price - strike price

Long stock and put payoff = Stock price - strike price + 0 = Stock price - strike price

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A trader can close a long position in a call option by: (a) buying a put....
A trader can close a long position in a call option by: (a) buying a put. (b) selling a call. (c) buying the stock. (d) buying a call.
Consider a put option and a call option with the same strike price and time to...
Consider a put option and a call option with the same strike price and time to maturity. Which of the following is true? (5 points) It is possible for both options to be in the money. It is possible for both options to be out of the money. One of the options must be in the money. One of the options must be either in the money or at the money. When the stock price increases with all else remaining...
Which of the following is the riskiest single-option position? (a) long the call. (b) long the...
Which of the following is the riskiest single-option position? (a) long the call. (b) long the put. (c) short the call. (d) short the put. (v) An investor will make a net profit from a call option when the price of the stock is: (a) above the strike price. (b) below the strike price plus the premium. (c) above the strike price plus the premium. (d) at the strike.
You establish a protective put position on ABC stock today by buying 100 shares of ABC...
You establish a protective put position on ABC stock today by buying 100 shares of ABC stock at $30 per share and buying a 9-month put option contract on the same stock. Each put option has a strike price of $18 and a premium of $0.50. At the end of 9 months, compute the profit from the position if ABC's stock price is $40.
For a European call option and a European put option on the same stock, with the...
For a European call option and a European put option on the same stock, with the same strike price and time to maturity, which of the following is true? A) Before expiration, only in-the-money options can have positive time premium. B) If you have a portfolio of protected put, you can replicate that portfolio by long a call and hold certain amount of risk-free bond. C) Since both the call and the put are risky assets, the risk-free interest rate...
For a European call option and a European put option on the same stock, with the...
For a European call option and a European put option on the same stock, with the same strike price and time to maturity, which of the following is true? A) When the call option is in-the-money and the put option is out-of-the-money, the stock price must be lower than the strike price. B) The buyer of the call option receives the same premium as the writer of the put option. C) Since both the call and the put are risky...
Draw the payoff picture at expiration for a long position in a put option that has...
Draw the payoff picture at expiration for a long position in a put option that has a premium of $3.50 and a strike price of $35.
You have taken a long position in a call option on IBM common stock. The option...
You have taken a long position in a call option on IBM common stock. The option has an exercise price of $176 and IBM’s stock currently trades at $180. The option premium is $5 per contract. (LG 10-4) How much of the option premium is due to intrinsic value versus time value? page 350 What is your net profit on the option if IBM’s stock price increases to $190 at expiration of the option and you exercise the option? What...
Suppose you are long 100 contracts on a 1-year 25-put option on AMZN. How much will...
Suppose you are long 100 contracts on a 1-year 25-put option on AMZN. How much will your option position increase in value if AMZN stock price goes down by $1 (use negative number if value decreases). Suppose you are long 100 contracts on a 1-year 25-put option on AMZN. How much will your option position increase in value if AMZN stock price goes up by $1 (use negative number if value decreases). Suppose you are short 50 contracts on a...
Which has unlimited downside risk, a long or short position in a call option? What about...
Which has unlimited downside risk, a long or short position in a call option? What about a long or short position in a put option? Explain your answer.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT