Consider the following options portfolio. You write an August expiration call option on IBM with exercise price $150. You write an August IBM put option with exercise price $145.

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 $153 on the option expiration date? What if IBM is selling at $160? Use the data in Figure 20.1 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 to justify this position?