Question: Consider the following options portfolio. You write a January expiration call option on IBM with exercise price 130. You write a January IBM put option

Consider the following options portfolio. You write a January expiration call option on IBM with exercise price 130. You write a January IBM put option with exercise price 125.

a. Graph the payoff of this portfolio at option expiration as a function of IBMâ€™s stock price at that time.

b. What will be the profit/loss on this position if IBM is selling at 128 on the option expiration date? What if IBM is selling at 135? Use The Wall Street Journal listing from Figure to answer this question.

c. At what two stock prices will you just break even on your investment?

d. What kind of â€œbetâ€ is this investor making; that is, what must this investor believe about IBMâ€™s stock price to justify thisposition?

Consider the following options portfolio. You write a January ex

PRICES AT CLOSE DECEMBER 02, 2009 0 IB M (IBM) Undertying Stock Price: 127.21 Put Expiration Strike lost Volume Interest Last Volume Interest an 2010120 863 130 21841.18 1267 8871 Dax 2009 5 3.25 416 14419 1872 9203 an 2010 125 475 278 14180 2.44 100 9094 Dac 2009 130 07 2108 11033 3.55 84233 on 2010 130 18 3489 19278 479 198 3273 3 an 2010 135 .84176 24556 .75 24 76

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