A key to understanding option strategies is by understanding synthetic strategies that

simulates an existing trade. You are given the synthetic strategy, a combination of :

Strategy (1): Bought stock at $10.00

Strategy (2): Short call with $10.00 strike for $0.20 premium

(Ignore transaction costs and taxes)

1. Show the outcome of this strategy at a range of possible spot prices at expiry as shown in the table below:

Underlying spot price	9.20	9.40	9.60	9.80	10.00	10.20	10.40	10.60	10.80
Pay-off: Strategy (1)	-0.80	-0.60	-0.40	-0.20	0	+0.20	+0.40	+0.60	+0.80
Pay-off: Strategy (2)	+0.20	+0.20	+0.20	+0.20	+0.20	0	-0.20	-0.40	-0.60
Combined Strategies (1) + (2)	-0.60	-0.40	-0.20	0	+0.20	+0.20	+0.20	+0.20	+0.20

(Provide your answer with the table above in the answer booklet)

(6 marks)

# For this please show me the step

b) Draw the separate resulting strategy pay-off diagrams (3 diagrams) according to scale and clearly label the diagrams including the break-even point and strike price.

(4 marks)