Question

A trader buys a call option on a certain stock with a strike price of $55 and a put option on the same stock with a strike price of $50. both options have the same maturity. the call costs $3 and the put costs $4. let’s denote the price of the stock at the maturity by s_t. what are the conditions on s_t under which the trader’s profit at the maturity becomes positive? (*let’s ignore the effect of interest rates between time 0 and time t.)

Answer 1

The value of option contracts is not independent; It always gets its value from its base.As a result, the value is referred to as a margin or premium because it indicates a buyer's willingness to pay for an option right.

Cost of a call strike:Call premium of $40:Put strike price of $3:$40

Put premium:$3

What distinguishes margin from premium?

premiums and margins.When weighing futures versus options, premiums and margins are important considerations.When you buy options or enter into a futures contract, you must pay a premium and a margin.When you purchase futures, you are required to pay your broker a margin payment.

What are the various kinds of edge?

Gross Exposure Margin, Daily/Initial Margin, Special Margin, Mark to Market Margin, Volatility Margin, and Ad-hoc Margin are all examples of these metrics.

Learn more about Margin Or Premium here:

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