One of the more complex options strategies is the so-called iron condor portfolio, using a combinations of long and short positions, call and put options, and four different strike prices. In this question we will consider what would motivate traders to construct such a portfolio and the structure of the payoffs that they receive from it. Suppose that stock in Hieroglyph Inc. is currently priced at St = 150 per share, with prices of various options written on this stock given below.

Strike Call Price Put Price

120 35 5

140 20 10

160 10 20

180 5 35

(b) Now suppose that, while you still believe that extreme price movements in either direction are unlikely, you wish to limit your downside risk just in case. Modify your portfolio to achieve this, and plot the payoff diagram.