Question

Consider the following options   portfolio:   You   write   a   June   2017 expiration   call   option   on   Microsoft   with   exercise   price   $72.   You   also write   a   June   expiration   Microsoft   put   option   with   exercise   price $70. (LO   15-2) a.   Graph   the   payoff   of   this   portfolio   at   option   expiration   as   a   function of   the   stock   price   at   that   time.

Answer 1

Short Call payoff = -max(St - X, 0)

Short Put payoff = -max(X - St, 0)

Portfolio payoff = Short Call payoff + Short Put payoff

A B Strike Payoff St Short Cl Short Put Total 60 Call Put 72 70 -10 -10 Stock Price at expiry 62 63 64 65 60 61 62 63 64 6566 67 68 69/70 71 7273 74 75 76 77 78 79 80 81 82 10 12 13 14 15 16 17 18 19 20 21 67 68 69 70 71 72 73 74 75 76 0 78 79 80 23 24 25 26 12 82 10

Screenshot with formulas

Payoff Short Pu Strike St Short Call Call Put Stock Price at expiry 0 71 72 374 75 76 77 78790 82 -MAX B9-SHS3,0) 0)MAXISHS4 R)C+D11 17+1 --MAX(B18-$H$3,0) --MAXISIIS4-B18,0) -C18+D18 B201MAX(B21-SHS3,0)MAX(SHS4-B21.0)C21+D21 B22MAX B23-SHS3,0MAXSHS4-B23.0) C23+D23 23 MAX B24-SHS3,0)MAX(SHS4-B24,0)-C24+D24 -C26+D26 0 Sir 72 70 2 78901234 のののののの0,0 1,0 2 3 4 5 6 7 8 9 DO 2,0 3,0 456 ver x x x x x x x x x x x x x x x x x x x x }}}}~0 . 0 0 0 0 0 0 0 0-0. I 0 0 0 0 ssssss 0-123 4-5-6-7-8-9-0-12345- BRBBB

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