Combining Options: Suppose You Are Creating a Portfolio That Consists

question 14

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 $20 in risk-free bonds, and sell short one call option with a strike price of $60.
• B) Buy $20 in risk-free bonds, and buy one put option with a strike price of $60.
• C) Buy one share of stock, and buy one call option with a strike price of $60.
• D) Buy one share of stock, and sell one put option with a strike price of $60.