Construct the payoff diagram for siobhan

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Siobhan buys a bull spread on YMMV by going long C40 (the call struck at $40 / share) and short C45 (the call struck at $45).

a) Construct the payoff diagram for Siobhan's position. Label all the key points (maximum, minimum, breakeven). The effective interest rate until the option expires is 0.75%. The option prices are C40 = $4.12 and C45 = $2.28.

b) Construct the profit diagram for Siobhan's position. Label all the key points (maximum, minimum, breakeven). Instead of trading call options, Siobhan goes long the put P40 and short the put P45. The effective interest rate is the same and the prices are P40 = $3.82 and P40 = $6.94.

c) Show that the payoff graph for this pair of trades is the same as a) only shifted down by $5. Label all the key points (maximum, minimum, breakeven).

d) Show that the profit graph for this pair of trades is the same as b). Label all the key points (maximum, minimum, breakeven).

Reference no: EM132785426

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