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Consider the following portfolio of options: buy a European call at exercise price E and sell a put on the same underlying security at the
Consider the following portfolio of options: buy a European call at exercise price E and sell a put on the same underlying security at the same exercise price. What is the payoff pattern that is created? Next: suppose the price of the underlying security is higher than in the first case above. What will be the effect on the payoff pattern (i.e., how do you re-draw it)?
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