Question 1:

1A.)Consider the following strategy: you long a call and short a put with the same strike price (say X) and expiration date. Simultaneously, you also lend the present value of X that will be repaid when the call and put options expire. a). Construct the payoff table at option expiration for this strategy.

b). Draw the payoff diagram at option expiration for this strategy and label all the critical points and lines drawn (i.e., label the slopes and intercepts).

1B.) Consider the following bull money spread strategy using put options: you write a put option with strike price X1 and long a put option with strike price X2 where X2>X1. Both options have the same expiration date. a). Construct the payoff table at expiration for this strategy.

b). Draw the payoff diagram at expiration for this strategy and label all the critical points and lines drawn (i.e., label the slopes and intercepts).