A six-month call option on a stock with a strike price of $40 costs $4; a six-month put option on the same stock with a strike price of $40 costs $3. The trader can borrow money at zero interest over the six-month period. Suppose that a trader buys one call option and two put options. What is the break-even share price above which the trade is profitable? Please explain
A six-month call option on a stock with a strike price of $40 costs $4; a six-month put option on the same stock with a strike price of $40 costs $3. The trader can borrow money at zero interest over the six-month period. Suppose that a trader buys one call option and two put options. What is the break-even share price above which the trade is profitable? Please explain
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A six-month call option on a stock with a strike price of $40 costs $4; a
six-month put option on the same stock with a strike price of $40 costs $3.
The trader can borrow money at zero interest over the six-month period.
Suppose that a trader buys one call option and two put options.
What is the break-even share price above which the trade is profitable?
Please explain
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