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Calculate the value of the portfolio

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Reference no: EM132516315

A trader has the following portfolio:

1. Long 1-year put with strike $80

2. Short 1-year call with strike $120

3. Long 1 share of stock. (Option contracts are for 1 share).

Assume that the price of the underlying asset is $100. Volatility is 20%, rate=1%, dividend yield 0%.

a. Calculate the value of the portfolio.

b. What would be the maximum gain that the trader could incur in a month? Explain how.

c. What would be the maximum loss the trader could have in 1 month? Explain.

Reference no: EM132516315

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