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Draw profit diagram describing position profit

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Reference no: EM133071971

Problem 1: You anticipate that the volatility of the IBM stock will increase over the course of next year, but you do not have a strong view about future direction of IBM stock price. You decide to invest today in either one or two at the money European IBM options maturing in one year. The strike price of both options is $50 a share and today's IBM stock price is $50 a share. The call option premium is $5 and put option premium is $4.

(a) Describe your options position. Draw profit diagram describing your position's profit as a function of IBM's stock price at maturity. Draw profit diagram for all options (if applicable) and total profit as a function of IBM's stock price at maturity. Carefully label all points and lines.

Reference no: EM133071971

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