Stock price goes down and constant floor on the total loss

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You would like to construct a position that will have a constant "ceiling" on the total profit if stock price goes down and a constant "floor" on the total loss if the price goes up. Use must use two put options to achieve this result. You have access to two put options with the following characteristics: Option A: strike price of $35, the price of this put option is $3 per share. Option B: strike price is $30, the price of this put option is $1 per share. Both options have the same time to maturity and can only be excercised on expiration date.

(a) Describe you position in the two put options.

Given your answer in part a answer parts b, c, d and e about the combined position.

(b) What is your total profit or loss per share if the stock price is $33 at expiration?

(c.) What is your total profit or loss per share if the stock price is $5 at expiration?

(d) What is your total profit or loss per share if the stock price is $40 at expiration?

(e) Below draw the per share profit profiles for each of the options you have selected in part a and their combined (total) profit at expiration (label each axis, each profile and all breakeven points)

Reference no: EM131560235

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