Exercise 2.7 (Hull, Chapter 12) Consider a trader who is trading call and put options with maturity T>0 on a stock. (a) Provide and draw the payoff profile at maturity T as a function of the stock price ST at time T of following trading strategies: (i) Butterfly Spread: This position consists of call options with three different strikes but with the same maturity T>0. Specifically, the trader buys two call options with strikes K1 and K2 where K2>K1 and sells two calls with strike (K1+K2)/2. (ii) Straddle: The trader has a long position in a call option and a put option for the same stock with the same strike and the same maturity. (b) Draw the trader's net profit at maturity T as a function of the price of the underlying stock ST at time T of both trading strategies (i) and (ii). In particular, for implementing the butterfin spread strategy does the trader have to pay money or is she receiving money? Explain carefully. Exercise 2.7 (Hull, Chapter 12) Consider a trader who is trading call and put options with maturity T>0 on a stock. (a) Provide and draw the payoff profile at maturity T as a function of the stock price ST at time T of following trading strategies: (i) Butterfly Spread: This position consists of call options with three different strikes but with the same maturity T>0. Specifically, the trader buys two call options with strikes K1 and K2 where K2>K1 and sells two calls with strike (K1+K2)/2. (ii) Straddle: The trader has a long position in a call option and a put option for the same stock with the same strike and the same maturity. (b) Draw the trader's net profit at maturity T as a function of the price of the underlying stock ST at time T of both trading strategies (i) and (ii). In particular, for implementing the butterfin spread strategy does the trader have to pay money or is she receiving money? Explain carefully