Which of the following can be used to create a long position in a European put option on a stock?
A. Buy a call option on the stock and buy the stock
B. Buy a call on the stock and short the stock
C. Sell a call option on the stock and buy the stock
D. Sell a call option on the stock and sell the stock
B
As payoff diagrams show a call on a stock combined with a short position in the stock gives a payoff similar to a put option. Alternatively we can use put-call parity, which shows that a call minus the stock equals the put minus the present value of the strike price.
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