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Consider the following portfolio:

Long (i.e. buy) 1 share, write a call option on the stock with a strike price of $50, write a call option on the stock with a strike price of $60, and long (i.e. buy) a call option on the stock with a strike price of $110. All options have the same expiration date.

1. Construct a table showing the payoffs from the trading strategy. You can ignore the price of the options when constructing this table.

2. Draw a picture that shows the payoff from the portfolio on the vertical axis, and stock price on the horizontal axis.

3. For what range of stock prices would the payoff be at its maximum? What will be the maximum payoff?

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92854495

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