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What is the maximum profit your portfolio can achieve

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Reference no: EM133041110

Question - You are feeling bearish on shares of LOSE stock (i.e., you think the price will drop over the short term). You decide to create a portfolio by purchasing 4 put options on the stock with a strike price of 32.50 and three months until expiration. To lower the cost of your portfolio, you simultaneously sell 2 put options on the stock with a strike price of 27.50 also with three months until expiration.

The current price of one share of LOSE is 35.00.

The price of a put option with a strike price of 32.50 and three months until expiration is 2.50

The price of a put option with a strike price of 27.50 and three months until expiration is 1.15.

The interest rate is 4%.

a. What ending stock price(s) would result in a profit of 2.22?

b. If the price of one share of LOSE stock at the end of three months is greater than its current price, what is the maximum profit your portfolio can achieve?

Reference no: EM133041110

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