Profit from the total portfolio position

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Ms. Taylor had taken a short position in 1,000 shares of the common stock of Toronto Packaging Ltd. at the price of $40 per share in the past. Today the price per share is $30 which provides her gains in her short position. She is concerned that the price of the stock may go higher in the future, which will adversely affect her capital gains in the short position. Suppose she buys 10 calls on the common stock of Toronto Packaging Ltd. and each call is American and has the premium of $1.2 per share, the exercise price of $37 per share, size of 100 shares and option period of 6 months. 

Suppose after 3 months today, the spot price per share of the stock, denoted by St, happens to be:

i) St = $25

ii) St = $35

iii) St = $45

iv) St = $55

Ignore the time value of money in calculations, what is the profit (loss) from the total portfolio position of Ms. Taylor in the stock at each of four levels of St.

Reference no: EM132403355

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