Min has created the following portfolio:
$\bullet$ bought a share for $20
$\bullet$ bought 3 puts, strike price $18
$\bullet$ maturity 1year
Suppose at expiration S_T is $17.What is the payoff of her strategy?

Question

Min has created the following portfolio:

\bullet

bought a share for $20

\bullet

bought 3 puts, strike price $18

\bullet

maturity 1year
Suppose at expiration S_T is $17.What is the payoff of her strategy?

Quizplus · Accepted Answer

The share is worth $17, resulting in a loss of $3. Each put option has a payoff of $1 ($18 - $17), and with 3 puts, the total payoff is $3. The net payoff is $3 - $3 = $0.

Min Has Created the Following Portfolio ∙\bullet∙ Bought a Share for $20

Min Has Created the Following Portfolio $\bullet$ Bought a Share for $20