Consider a pair of call and put options with the same expiration date but different strike prices. The put option has a strike price of $45 and is currently priced at $6.00. The call option has a strike price of $35 and is currently trading at a price of $6.50. The current stock price is $40 per share. A trader is evaluating a trading strategy involving the following option positions: Long 1 put options (with strike price $45) Long 2 call option (with strike price $35)

a) Draw a figure/graph illustrating the profit/loss of the trading strategy. Make sure you scale and label all the lines and points properly so that gains and losses are clearly shown. b) For what range of stock prices would the trader end up with a profit if the strategy is executed? c) Discuss the main characteristics of this strategy. When is it appropriate to use such a strategy?