Consider the following options portfolio. You write a July 2009 expiration call option on IBM with exercise price $100. You also write a July expiration IBM put option with exercise price $95.

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

b. What will be the profit/loss on this position if IBM is selling at $97 on the option expiration date? What if IBM is selling at $105? Use The Wall Street Journal lis ting from Figure 15.1 to answer this question.

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

d. What kind of “bet” is this investor making; that is, what must this investor believe about IBM’s stock price in order to justify this position? LO.1