Draw a profit for this position at expiration in one year

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Suppose you borrow money at an annual interest rate of 1%, buy Apple stock for $250, buy a one year $200 strike European put option for $5, and sell one year $300 strike European call option for $10. Please use simple compounding of interest in all calculations for this problem.

a. Draw a profit for this position at expiration in one year

b. What is the net option premium value today ? If you want to construct a zero cost collar keeping the put option strike price equal $200, would you have to increase or decrease the strike price of the $300 strike call option on Apple ? Explain your reasoning

Reference no: EM132417207

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