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Identify the options in contract

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Reference no: EM132404631

A pension fund manager expects to receive an inflow of funds in 60 days time. The manager would like to use these funds to buy a stock  that is currently trading at $25 per share. The manager is concerned that the stock price might increase over the next 60 days. The maximum amount the manager would be prepared to pay for the stock is $30.

A financial institution offers the company the following contract. In 60 days time, if the stock price is above $30, the institution will compensate the fund manager for the difference between the spot price and $30. If the stock price is below $22, the fund manager will pay the institution the difference between $22 and the spot price.

Please identify the options in this contract and provide a clear explanation to your answer.

A call and a put option has been applied on the above. Therefore, how to calculate the price and the result of gain/loss.

Reference no: EM132404631

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