Question

Graphing Trading Strategies: This problem asks you to graph profit diagrams for several trading strategies. Compute the profit of the strategy at maturity with respect to different realizations of the stock price in the future and plot the profit diagram (stock price on x-axis; profit on y-axis) of the strategy. a. Buying a Straddle: Buy a call with an exercise price of $20 for a price of $2.65 and buy a put with an exercise price of $20 for $1.85. b. Writing a Strangle: Sell a call with an exercise price of $100 for a price of $4.15 and sell a put with an exercise price of $90 for $5.90. c. Buying a bull spread: Buy a call with an exercise price of $60 for a price of $9.60 and sell a call with an exercise price of $70 for $6.25. d. Buying a butterfly spread with calls: Buy a call with an exercise price of $30 and a price of $4.50. Sell two calls with an exercise price of $35 and a price of $2.80. Finally, buy one call with an exercise price of $40 and a price of $2.05. e. Writing a butterfly spread with puts: Sell a put with an exercise price of $115 and a price of $6.80. Buy two puts with an exercise price of $125 and a price of $9.10. Finally, sell one put with an exercise price of $135 and a price of $17.65.

Answer 1