Ask Question
23 September, 04:26

You sell one Huge-Packing August 50 (strike price) call contract and sell oneHuge-Packing August 50 put contract. The call premium is $1.25 and the putpremium is $4.50. Your strategy will pay o only if the stock price is inAugust. a) either lower than $44.25 or higher than $55.75b) between $44.25 and $55.75c) higher than $55.75d) lower than $44.25

+5
Answers (1)
  1. 23 September, 05:44
    0
    The strategy only pays off when the stock price in August is between $44.25 and $55.75. Thus, the answer is b.

    Explanation:

    The investor net gain on premium from option is $1.25 + $4.5 = $5.75.

    The investor has to obligation to buy at $50 and obligation to sell at $50 in August.

    As a result, Investor paid-off is described according to the spot price, denoted as x, of Hug-Packing in August as below:

    Spot price <$50: 5.75 - (50 - x) = x - 44.25

    Spot price = $50: $5.75

    Spot price > $50 : 5.75 - (x - 50) = 55.75 - x

    Thus, the strategy will pay off only when:

    (x - 44.25) > 0 and (55.75 - x) <0 or x is between $44.25 and $55.75.

    Thus, the answer is b.
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “You sell one Huge-Packing August 50 (strike price) call contract and sell oneHuge-Packing August 50 put contract. The call premium is $1.25 ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers