E connect Yousef Sherhan FIN4710 Advanced Investment Analysi

E connect Yousef Sherhan FIN4710 Advanced Investment Analysis Summer 2018 FINANCE Homework #4 instructions help Question 2 (of 5) | Save & Exit | | Submit value 10.00 points You purchase one Facebook October 170 put contract for a premium of $9.25. What is your maximum possible profit? Assume each contract is for 100 units. Potential profit References eBook & Resources Worksheet Learning Objective: 15-01 Calculate the profit to various option positions as a function of ultimate security prices.

Solution

Problem 2:

Max profit of put option = Strike price - put premium

Max profit of put option = 170 - 9.25 = $160.75

Problem 5:

Portfolio: V = S + P (X = 48) - C (X = 56)

This is a Collar.

V₀ = 51 + 0.55 - 0.55 = 51

S < 48

S = 48

48 < S 56

S = 56

S > 56

S

S

48

S

56

S

P (X = 48)

48 - S

0

0

0

0

C (X = 56)

0

0

0

0

S - 56

V_T = S + P - C

48

48

S

56

56

V₀

51

51

51

51

51

Profit = V_T - V₀

-3

-3

S - 51

5

5

Max profit = $5

Max loss = $3

	S < 48	S = 48	48 < S 56	S = 56	S > 56
S	S	48	S	56	S
P (X = 48)	48 - S	0	0	0	0
C (X = 56)	0	0	0	0	S - 56
VT = S + P - C	48	48	S	56	56
V0	51	51	51	51	51
Profit = VT - V0	-3	-3	S - 51	5	5