LE6-1.docx

# LE6-1.docx - LE6 1 Strike Price = E Maturity = T Spot price...

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LE6 1) Strike Price = E Maturity = T Spot price = X Premium received on writing the Call Option = P1 Premium paid on holding put option= P2 The investor has decided to buy a put option and a call option with the same strike price in the hopes that the underlying asset will either rise or decline far enough in price to make a larger profit on one option than the loss sustained by the losing option. The total payoff for holding a call and put option on the same stock = (X-E)+P1-P2 it’s the difference between strike price and future spot price and premiums received and paid. Payoff table at point of Expiration (Spot price is X, strike price is E). Asset price Call Payoff Put Payoff Net payoff X<E 0 (E-X) (E-X) X>E -(X-E) 0 -(X-E) Total payof 2E-2S The payoff on a graph looks like this for the call option Call option payof i. Payoff Diagram Call payoff 45 Price of underlying asset E S T Put option Payof

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i. Payoff Diagram Put payoff at expiration 45 Price of underlying asset E S T 2) Strike Price (K) = \$20 Spot Price (So) = \$19
• Fall '17
• musab kurnaz
• \$1, \$2, Strike price

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