Suppose You Are Holding the Following Portfolio: 100 Shares of XYZ

question 20

Essay

Suppose you are holding the following portfolio: 100 shares of XYZ stock plus a call option contract for 100 shares of XYZ with exercise price of 50 and a June expiration date plus a put option contract for 100 shares of XYZ with exercise price of 40 and a June expiration date.
a. What will this portfolio be worth on expiration date if XYZ is at 35? At 45? At 55?
b. Can this portfolio ever be worth less than $3500? Can it be worth more than $10,000? Explain.
c. Answer the questions in part a and part b if your portfolio involves a short position in the call option contract instead of a long position. (I.e., you are long 100 shares of stock and the put contract, and short the call option contract.)

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