Maximum loss and the break-even points

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An investor buys a call and a put on the DAX when the index is at 9000. The call costs 50, and the put costs 100. Both options are European and have the same maturity. The call has a strike price of 9100, while the put has a strike of 8800.

a. Draw the profit-and-loss diagram (at maturity) for this trading strategy. Do not forget to annotate axes and all curves shown, and learly indicate in your diagram the maximum loss and the break-even points!

b. Which views of an investor are compatible with entering into this trading strategy if the investor's goal is to hold the position until the options' maturity?

c. What views of an investor are compatible with entering into this trading strategy if the investor's goal is to sell the position a few days later (i.e., what would have to change to cause an increase in the value of this position?)?

Reference no: EM133118753

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