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Calculate max profit-max loss and break-even price

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1. Suppose you short a $42 Put with a premium of $3 and bought a $38 Put with a premium of $1. What is this strategy called? Ignoring time value of money and transaction costs, calculate max. profit, max. loss and break-even price.

2. In what situations would an investor want to have a synthetic long position in a stock rather than buying the stock outright? Give a detailed explanation with an example and discuss the pros and cons of these two strategies.

Reference no: EM132703485

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