Combining Options: Suppose You Are Creating a Portfolio That Consists

question 92

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 put option of the stock with a strike price of $60. Sell short a call option with a strike price of $120.
• B) Buy $60 in zero-interest bonds. Sell short one call option with a strike price of $60. Sell short one put option with a strike price of $60.
• C) Buy one share of stock. Sell one call option with a strike price of $120.
• D) Buy one share of the stock. Sell short two call options with a strike price of $60. Buy one call option with a strike price of $120.

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Definitions:

Treadmill

An exercise machine that allows one to walk or run in place, often used for fitness training or rehabilitation.

Repositioning

The act of moving or arranging someone or something into a different position, especially to improve comfort, effectiveness, or accuracy.

Assistive Devices

Tools, products, or types of equipment that are designed to help people perform tasks and activities they might otherwise be unable to undertake or to perform such tasks and activities more easily and safely.

Flat Position

A body position where the person is lying down on their back with no inclination, making the body level with the horizontal surface.