Combining Options: Suppose You Are Creating a Portfolio That Consists

question 33

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 and one put option on the stock with a strike price of $60.
• B) Buy one call option with a strike price of $60 and sell short one call option with a strike price of $80. Buy one put option at a strike price at $60 and sell short one put option with a strike price of $40.
• C) Buy one share of the underlying stock. In addition, buy two call options, one with a $40 strike price, and one with a $80 strike price.
• D) Buy one share of the underlying stock, and a put option with a strike price of $60. Sell short call two call options-one with a strike price of $40 and one with a strike price of $80.

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