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What is the overall payout

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Reference no: EM133118854

You are long the following 1-year options:

- 2 call options with K = 20

- 3 call options with K = 30

- 4 call options with K = 40

a) You want to add positions in a 1-year K = 50 call option such that your overall payout at t = 1 will be the same for any value S1 ≥ 50 (In other words, the payout for S1 = 50 and beyond is a flat line). How many K = 50 calls do you have to trade, and do you have to go long or short?

b) What is the overall payout at t = 1 for any value of S1 ≥ 50?

Reference no: EM133118854

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