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Construct the payoff table for strategy at expiration

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Reference no: EM132719630

The current stock price of Apple Inc. is $152 per share. Consider the option strategy, which consists of the following positions:

a. Buying one put option on Apple with the strike price of $140. The price of this option is $10.50.

b. Selling one call option on Apple with the strike price of $155. The price of this option is $17.

c. Buying 1 share of Apple.

All options expire in 1 month, on December 31, 2020. Answer the following questions:

1. Construct the payoff table for this strategy at expiration;

2. Construct the graph, which illustrates the payoff of this strategy at expiration. The payoff table should help you to construct this graph.

3. What is the cost of this strategy?

4. Draw the graph, showing profit/loss of this strategy at expiration (you can disregard the time value of money);

5. In your opinion, what is the rationale for constructing this strategy?

6. What should be the price of the put option on Apple, which also expires on December 31, 2020 and has a strike price of $155. The risk free rate is currently 1% per annum.

Reference no: EM132719630

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