Currently, European call options on Sunvalley stock with an exercise price of $$40$ and a time to maturity

of $7$ months are trading at $$2\mathrm{.}10.$ European put options with the same exercise price and time to maturity

are trading at $$9\mathrm{.}00.$ Assume that one option give the right to purchase or sell one stock.

Suppose your broker suggests the following investment strategy: Write one Sunvalley call option and buy

one Sunvalley put option $($both with an exercise price of $$40$ and a time to maturity of $7$ months$).$

$25.$ What would be the payoff diagram for the short call option?

a$)$ b$)$ c$)$

d$)$ e$)$

Payoff

ST

K

$-$K

Payoff

ST

K

$-$K

ST

Profit

$-$K

K

ST

Payoff

K

K

ST

Payoff

K

K

From attached table, N$($d$1)=$ N$(-0\mathrm{.}28)=0\mathrm{.}3897$

rT $0\mathrm{.}059/12$ C S N$($d $)$ e K N$($d $)320\mathrm{.}3897$ e $400\mathrm{.}2510$ $$2\mathrm{.}80012$

$===$

FIN $301$

$7$

$26.$ What would be the payoff diagram of your broker$$s option strategy?