Problem
Suppose Google stock is currently $1043 a share. Suppose these are the options prices at different strikes for December 18, 2023:
|
|
|
Calls
|
Puts
|
|
Strike
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$1030
|
$50.11
|
$31.32
|
|
$1035
|
$47.21
|
$33.51
|
|
$1040
|
$44.41
|
$35.81
|
|
$1045
|
$41.71
|
$38.20
|
|
$1050
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$39.10
|
$40.75
|
I. Draw the payoff structure you would have had for buying the call option with a strike price of $1050 (and expiry of December 18, 2023, in case that wasn't obvious):
II. Draw the payoff structure for having bought the put option with a strike price of $1050 (and expiry of December 18, 2023).
III. Draw the payoff structure for buying one share of Google (at the then current price of $1043) along with one put option with a strike price of $1050.
IV. Draw the payoff structure from buying the put with a strike price of $1050 while selling the put with a strike price of $1030. Explain why an investor might put on this strategy (which is called a bear put spread - it has nothing to do with Yogi Bear and Boo Boo).[1]
V. Draw the payoff structure from having bought one share of Google and having sold one call with a strike of $1050 (this is called a covered call). How does the payoff compare to just buying the stock outright?