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Consider an option combination created by a long put with strike price K1 and two long...

Consider an option combination created by a long put with strike price K1 and two long calls at strike price K2 where K1 < K2. Create a payoff table for this combination.

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Answer #1

Call option pays off if the stock price at maturity is higher than the strike price and 0 if stock price at maturity is lesser than the strike price

Call option pays off if the stock price at maturity is lower than the strike price and 0 if the stock price at maturity is higher than the strike price

Stock price at maturity Long put payoff 2 long calls payoff Net payoff
S(T) < K1 K1-S(T) 0 K1-S(T)
K1<S(T)<K2 0 0 0
S(T)>K2 0 2*(K2-S(T)) 2*(K2-S(T))
0 0
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