Options Question

CFA Level II Derivatives
#1

Hi everyone,

I’m having trouble understanding this question from the Schweser notes:

A synthetic European put option is created by:

A. buying the discount bond, buying the call option, and short-selling the stock

B. buying the call option, short-selling the discount bond, and short-selling the stock

C. short-selling the stock, buying the discount bond, and selling the call option

The book lists A as the correct answer, but even after reading the explanation I don’t understand why. What’s the simplest way to approach this type of question?

Thanks!

#2

Use put-call parity and rearrange the equation to isolate the put.

#3

You, there! Put option! In the corner right now!

Bad put option!

#4

#5

What a cutie!

#6

Call Option, you’re a good boy, so you better stay in the line with the rest!! :+1:

#7

#8

Well, this has taken an unexpected turn.

#9

But the pupperz r so kyooooooot!! And didn’t my answer help you out???

#10

Nobody expects the Sp . . . .

Oh, wait . . . wrong sketch.

As you were.

#11