Concept explainers
Currently you own no stock or options. Today's data for Green Corporation, where the call and put have the same exercise price and expire in one year:
Strike Price Put Price Call Price Stock Price
$32.50 $2.85 $1.65 $30.00
a. If you construct a protective put strategy, which securities will you buy or sell, and what is your total investment today? If the stock price is $20 on the expiration date, what will be the value of your portfolio (payoff) on that day, and your net profit?
b. If you construct a covered call strategy, which securities will you buy or sell, and what is your total investment today? If the stock price is $45 on the expiration date, what will be the value of your portfolio (payoff) on that day, and your net profit?
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