Retain the named portfolio
Match underlying, expiry and represented units. Stock purchase, option premium and terminal cash have different date roles. The parity case additionally uses European options, no underlying income and its supplied discount factor.
Inspect the regions before the numbers
For a stock-plus-put package, evaluate below and above strike. For a current-cost identity, price terminal cash at today’s factor. Keep a positive payoff from being relabeled as funded or net profit.
Try the questions
Stock cost 100 plus a 90 put costing 3. What is the simple terminal-profit floor?
- A.
−10
- B.
−13
- C.
0
Answer and explanation
Answer: B
The protective payoff floor and premium-adjusted profit floor are different.
- A
This omits the put premium from cost.
- B
Minimum terminal value 90 minus total cost 103.
- C
The terminal floor is not a guarantee of no loss.
S0=100, K=100, D=0.95 and C0=8 under compatible European no-income parity. What is implied P0?
- A.
8
- B.
3
- C.
−3
Answer and explanation
Answer: B
Current parity funds terminal strike cash with KD=95.
- A
This uses undiscounted K as its present cost.
- B
8+100×0.95−100 equals 3.
- C
This reverses the rearranged signs.
Same-strike long call and short put have what combined expiry payoff?
- A.
|S−K|
- B.
S−K
- C.
max(S,K)
Answer and explanation
Answer: B
Check below and above K; both regions produce S−K.
- A
That is long call plus long put.
- B
Subtracting the put holder amount gives the signed linear function.
- C
That describes stock plus put or call plus terminal K.