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Consider the following devil staircase option strategy with European call and put options, on the same non-dividend paying stock and with the same expiration date.
Consider the following devil staircase option strategy with European call and put options, on the same non-dividend paying stock and with the same expiration date.
Long Put with exercise price X1 = 100, and option premium P1 = 10 (per option)
Short Call with exercise price X2 = 150, and option premium C2 = 10 (per option)
Long Call with exercise price X3 = 200, and option premium C3 = 5 (per option)
- (1.5pt) Draw a profit diagram for each of the four elements of this option strategy. On each diagram, indicate your profit if the stock price at expiration is: ST = 90, 130, 160, 190, 210
- (2.5pt) Draw the profit diagram of the option strategy. On the diagram, indicate your profit if the stock price at expiration is: ST = 90, 130, 160, 190, 210
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