Synthetic Options: Draw the payoff (including the premiums paid/received) diagram for following strategies:

(a) Let us assume a trader thinks that price of an asset, STOCK, will go up moderately in near term. Let us say the share price of STOCK is $100 today. The trader sells a put option on STOCK with strike price $110 and buys a put option on STOCK with strike price $90. (You have figure out if the premium on $110 put is going to be more or less than that on $90 put)

(b) Let us assume a trader thinks that price of an asset, STOCK, will go up moderately in near term. Let us say the share price of STOCK is $100 today. The trader buys a call option on STOCK with strike price $90 and sells a call option on STOCK with strike price $110. (You have figure out if the premium on $110 call is going to be more or less than that on $90 call)

(c) Let us assume a trader thinks that the volatility in the price of an asset, STOCK, is going to be small in near term. Let us say the share price of STOCK is $100 today. The trader buys a call option on STOCK with strike price $120 and sells a call option on STOCK with strike price $110. The trader also buys a put option on STOCK with strike price $80 and sells a put option on STOCK with strike price $90. (Assume that the premium on call option of $120 is same as premium on put option of $80 as well as the premium on call option of $110 is same as premium on put option of $90)

(d) Let us assume a trader thinks that the underlying security, STOCK, will experience significant volatility in the near term. Let us say the share price of STOCK is $100 today. The trader buys a call option on STOCK with strike price $100 and buys a put option on STOCK with strike price $100. (Assume that the premium on call as well as the put option are same)