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Consider the following investments * An investor short sells a stock at a price S, and writes

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Consider the following investments
* An investor short sells a stock at a price S, and writes an al-the-money call option on the same stock with a strike price of k
* An investor buys one put with a strike price of K1 and one call option at a strike price of K2 with K1 ≤ K2.
(a) Plot the expiration payoff diagrams in each case
(b) How would these diagrams look some time before expiration?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
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A call option is a type of financial contract that gives the holder the right, but not the obligation, to buy an underlying asset (such as a stock, commodity, or currency) at a specified price (called the strike price) within a specified period of time. When an investor purchases a call option, they are essentially betting that the price of the underlying asset will rise above the strike price before the option\'s expiration date. If the price of the asset does rise above the strike price, the investor can exercise the option by buying the asset at the strike price and then selling it at the higher market price, thereby earning a profit. Call options are often used as a speculative investment strategy, as they allow investors to potentially profit from the upward movement of an asset without having to actually own the asset itself. They are also commonly used as a hedging tool to protect against potential losses in a portfolio.

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