Question

Consider the following options portfolio. You write a January maturity call option on Canadian Pacific with...

Consider the following options portfolio. You write a January maturity call option on Canadian Pacific with exercise price 60. You write a January Canadian Pacific put option with exercise price 55.

a) Graph the payoff of this portfolio at option expiration as a function of Canadian Pacific’s stock price at that time.

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Answer #1

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A.
If the Call option(C minus) is written with a strike price of 60.

Then below 60, there is no payoff.
Above 60, there is a payoff of strike price-stock price.

Call pay off = Min(0,strike price- stock price)


B.
If the Put option(P minus) is written with a strike price of 55.


Put pay off = Min(0,stock price-strike price).


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