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Mr. Parker purchase a call option with exercise price of $40 and sells a call with...

Mr. Parker purchase a call option with exercise price of $40 and sells a call with an exercise price of $30. graph the payoff to this strategy. show your steps.

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Answer #1

Payoff of long call = max(St - X1, 0)

Payoff of short call = -max(St - X2, 0)

Where St is the price at expiry

X1 = $40

X2 = $30

Total payoff is the sum of two payoffs

Screenshot with formulas

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