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Consider two call options on the same underlying stock and same expiration date. You buy the call with X = 40, and sell call with
Consider two call options on the same underlying stock and same expiration date. You buy the call with X = 40, and sell call with X = 50. What is the payoff from your position if the stock price ends at $32? What is the highest payoff from this position? What is the lowest payoff from this position? When would you engage in such a position?
PS: In all questions above X = the exercise price of the options, C = call premium, P = put premium
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