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Question 4 ( 2 0 % ) The plot on the next page illustrates the payoff ( not profit / loss ) of an option
Question
The plot on the next page illustrates the payoff not profitloss of an option trading strategy at
maturity. The current stock price is $ Only call options are used in the strategy.
a
Write down the payoff of the strategy as a function of the stock price at option maturity.
b
Reverse engineer the composition of the strategy. What call options are used in the strategy? What
are the strike prices? How many of each option are used? Long or short?
c
Use a table to show the payoffs of each call option position and the overall strategy in b above. Is
the overall payoff identical to the one in a
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