Clark Kent took following position in Gotham Inc. Wrote 1 call at $75 and bought 1...

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Finance

Clark Kent took following position in Gotham Inc. Wrote 1 callat $75 and bought 1 put at $95. Assume premium on call is $5 andpremium on put is $5.
1) What situation would give rise to maximum loss?
2) What is the maximum possible loss? (a. 95 b. 75 c. 85 d.unlimited)
3) What situation would give rise no profit no losssituation?
4) What situation would give rise maximum profit?
A) ST<=75
B) 75
C) ST<=95
D) Cannot determine
can someone please explain how to solve each of the 4 questions?I need the explanation dumbed down. Thank you!

Answer & Explanation Solved by verified expert

3.9 Ratings (522 Votes)

Hello Sir Mam Given that Clark Kent took 1 put 95 and wrote 1 call at 75 Hence this means that for buying put at 95 the maturity price Below 95 Inflow Difference More than or equal to 95 Payoff 0 See Answer

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Clark Kent took following position in Gotham Inc. Wrote 1 callat $75 and bought 1 put at $95. Assume premium on call is $5 andpremium on put is $5.1) What situation would give rise to maximum loss?2) What is the maximum possible loss? (a. 95 b. 75 c. 85 d.unlimited)3) What situation would give rise no profit no losssituation?4) What situation would give rise maximum profit?A) ST<=75B) 75<ST<95C) ST<=95D) Cannot determinecan someone please explain how to solve each of the 4 questions?I need the explanation dumbed down. Thank you!