Question
): For the following strategy, construct a profit table and then graph the profit. Buy 1 put option (Put 1 ) with an exercise price
): For the following strategy, construct a profit table and then graph the profit.
Buy 1 put option (Put1) with an exercise price of X1
Write 1 put option (Put2) with an exercise price of X2
Write 1 call option (Call1) with an exercise price of X3
Buy 1 call option (Call2) with an exercise price of X4
Where X1 < X2 < S < X3 < X4
And S is the current stock price
The two purchased options will have lower premiums than the two written options since they are less valuable at the time the strategy is created.
Put1 < Call2 < Put2 < Call1
You may assume $ values for all PUT/CALLS
Stock Price at Expiry | Put1 Profit | Put2 Profit | Call1 Profit | Call2 Profit | Total Profit |
S < X1 | X1-S-PUT1 |
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X1 < S < X2 |
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X2 < S < X3 |
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X3 < S < X4 |
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S > X4 |
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