Calculate the total profit per share at expiration

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Reference no: EM131070640

IBM stock price/share Exercise prices May Call premium May Put premium

14.13 12.50 1.95 0.35

It is 35 days to expiration on the options, and the interest is 4% per annual continuously compounding for all maturities. Use continuous compounding throughout. Each option contract is written on 100 shares of underlying stock, IBM. Use 365 days a year count. Calculate the total profit per share at expiration from the following strategies (part a and b):

a) Buy a 12.50 put and buy a round lot (100 shares) of stock

b) Buy a 12.50 call and Sell a 12.50 Put, and short a round lot (100 shares) of stock

c) Draw the total profit diagram from the net strategy for part a and b. Carefully label the levels and turning points.

Reference no: EM131070640

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