Reference no: EM131579173

A stock’s price is $55. An investor sells one call option contract on the stock with a strike price of $60 and buys a put option contract on the stock with a strike price of $60. The market prices of the options are $2.00 and $3.00, respectively. Both options will expire in nine-months.

a) For the call option, what is the investor’s position (long or short) on the underlying asset and what is the investor’s position (long or short) on the call option?

b) For the put option, what is the investor’s position (long or short) on the underlying asset and what is the investor’s position (long or short) on the put option?

c) Considering the price range between $40 and $70 for the underlying stock, draw investor’s profit diagram for the call option she bought, the put option she sold and total profit/loss for her overall position on the same graph. In your chart, mark and write the spot prices where the slope of the profit/loss changes.