Problem:
As of March 1st, 2007, the stock price of Boggle Inc. was $40 and an investor could buy at-the-money European call due to expire in one year for $4, and an at-the-money European put due to expire in one year for $3. The continuously compounded risk-free rate over the one-year period is reported to be 2.53%.
Required:
Question: What is the maximum loss on a portfolio that is long one at-the-money put and one at-the-money call?
Note: Please show how to work it out.