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Question 7 [20 marks] (a) Sketch the payoff curve for the following combination of options (their expiration dates and underlying assets are the same). -
Question 7 [20 marks] (a) Sketch the payoff curve for the following combination of options (their expiration dates and underlying assets are the same). - Long 1 call with strike $20, - Short 2 calls with strike $25, and - Long 1 call with strike $30. [8] (b) State the official name of the combination of options in (a). What market condition(s) would it be used? [4] (c) Sketch the payoff curve for a "Strangle" and state how it could be constructed with options. [8]
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