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3. (Optional for 10pts extra credit) The current price of a non-dividend paying stock is 40. European put and call options are available with strikes
3. (Optional for 10pts extra credit) The current price of a non-dividend paying stock is 40. European put and call options are available with strikes of 35, 40, and 45. A spread on the stock has a payoff diagram of the following shape: Which of the following will have a payoff diagram of the same shape? I) Sell a 35 put, sell a 45 call, buy a 40 put and a 40 call. II) Buy a 35 put, buy a 45 call, sell a 40 put and a 40 call. III) Sell short one share of stock, sell a 35 put, sell a 45 call and buy two 40 calls. Please give some justification for your choice. A) I only B) II only C) I and III D) II and III E None of them
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