Combining Options: Suppose You Are Creating a Portfolio That Consists

question 95

Multiple Choice

Combining options: Suppose you are creating a portfolio that consists of zero-interest bonds, stock from a single company, and call and put options on the stock. Holding which of the following combination of securities will give the payoff shown in the following diagram?

• A) Buy one call option with a strike price of $40 and one put option with a strike price of $80.
• B) Buy one call option with a strike price of $80 and one put option with a strike price of $40.
• C) Sell one call option with a strike price of $40 and one put option with a strike price of $80.
• D) Sell one call option with a strike price of $80 and one put option with a strike price of $40.

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