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The current price of one share of NewTech Inc. (NTI) stock is $40.
1. The current price of one share of NewTech Inc. (NTI) stock is $40. The price of a one-year European put option on the stock with a strike price of $30 is quoted as $7 and the price of a one-year European call option on the stock with a strike price of $50 is quoted as $5.
Smith and Armstrong Holding (SAH) has asked you to act on its behalf and purchase 100 shares of NTI stock, short 100 call options, and buy 100 put options. Draw a diagram illustrating how the SAH's profit or loss varies with NTI's stock price over the next year.
How does your answer change if instead SAH direct you to purchase 100 shares of NTI stock, short 200 call options, and buy 200 put options? (20 points each case)
