Question

Done 3. For the following position, sketch the profit profile and label. all relevant points Assume the stock is trading at $65 today: Expert Q&A long 2 call options with a $70 strike price and a $8 option price short put option with a $60 strike price and a $7 option Roice! short the stock

Answer 1

	Option		Cash Flow
	Long two Call Options at Strike$70		($16)	(2*$8)
	Short Put Option at Strike $60		$7
	Short the stock		$65
	Net Cash Flow=7+65-16		$56
	Assume Price at expiration =S
	Payoffs:
	Long two Call Options at Strike$70
	Payoffs=2*Max.((S-70),0)
	Short Put Option at Strike $60
	Payoff=Min.((S-60),0)
	Short the stock
	Payoff =-S
			A	B	C	D=A+B+C+56
	S		PAYOFFS
	PRICE AT EXPIRATION	PROFIT	Long two calls@$70	Short One Put @$60	Short Stock @$65	Profit
	$55	($4)	$0	($5)	($55)	($4)
	$56	($4)	$0	($4)	($56)	($4)
	$57	($4)	$0	($3)	($57)	($4)
	$58	($4)	$0	($2)	($58)	($4)
	$59	($4)	$0	($1)	($59)	($4)
	$60	($4)	$0	$0	($60)	($4)
	$61	($5)	$0	$0	($61)	($5)
	$62	($6)	$0	$0	($62)	($6)
	$63	($7)	$0	$0	($63)	($7)
	$64	($8)	$0	$0	($64)	($8)
	$65	($9)	$0	$0	($65)	($9)
	$66	($10)	$0	$0	($66)	($10)
	$67	($11)	$0	$0	($67)	($11)
	$68	($12)	$0	$0	($68)	($12)
	$69	($13)	$0	$0	($69)	($13)
	$70	($14)	$0	$0	($70)	($14)
	$71	($13)	$2	$0	($71)	($13)
	$72	($12)	$4	$0	($72)	($12)
	$73	($11)	$6	$0	($73)	($11)
	$74	($10)	$8	$0	($74)	($10)
	$75	($9)	$10	$0	($75)	($9)
	$76	($8)	$12	$0	($76)	($8)
	$77	($7)	$14	$0	($77)	($7)
	$78	($6)	$16	$0	($78)	($6)
	$79	($5)	$18	$0	($79)	($5)
	$80	($4)	$20	$0	($80)	($4)
	$81	($3)	$22	$0	($81)	($3)
	$82	($2)	$24	$0	($82)	($2)
	$83	($1)	$26	$0	($83)	($1)
	$84	$0	$28	$0	($84)	$0	BREAK EVEN
	$85	$1	$30	$0	($85)	$1
	$86	$2	$32	$0	($86)	$2
	$87	$3	$34	$0	($87)	$3
	$88	$4	$36	$0	($88)	$4
	$89	$5	$38	$0	($89)	$5
	$90	$6	$40	$0	($90)	$6
								PROFIT PROFILE: X-Axis: Price at Expiration, Y axis: Profit $10 320 $30 $40 $50 $60 $70 $80 $90 $100