Suppose that c1, c2, and c3 are the prices of European call options with strike prices K1, K2, and K3, respectively, where K3 > K2 > K1 and K3-K2 = K2 - K1. All

options have the same maturity. Consider a portfolio that is long one option with strike price K1, long one option with strike price K3, and short two options with strike price K2. Which of the following is a correct description of this portfolio?

O 1. The payoff at maturity is either 0 or negative.

O 2. If a portfolio is constructed at the current time, positive income occurs.

3. It is also possible to create the same payoff by combining put options.

O 4. The greater the volatility of the underlying asset price, the higher the payoff.

5. There is no correct answer.