Consider the following options portfolio: You write a January 2012 expiration call option on IBM with exercise price $170. You also write a January expiration IBM put option with exercise price $165.
a. Graph the payoff of this portfolio at option expiration as a function of IBM’s stock price at that time.
b. What will be the profit/loss on this position if IBM is selling at $167 on the option expiration date? What if IBM is selling at $175? Use The Wall Street Journal listing from Figure 15.1 to answer this question.
c. At what two stock prices will you just break even on your investment?
d. What kind of “bet” is this investor making; that is, what must this investor believe about IBM’s stock price in order to justify this position?
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