Question $4(20\%)$

The plot on the next page illustrates the payoff $($not profit$/$loss$)$ of an option trading strategy at

maturity. The current stock price is $$50.$ Only call options are used in the strategy.

a$)(5\%)$

Write down the payoff of the strategy as a function of the stock price at option maturity.

b$)(6\%)$

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$)(9\%)$

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$)?$