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Illustrate the resulting payoff pattern

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Reference no: EM132709985

A trader buys a put on a stock having a certain strike price and buys a put on the same stock having a higher strike price. She also writes (sells) two puts having a strike price in the middle of the other two strike prices.

a. Illustrate the resulting payoff pattern (profits for different possible stock prices at the expiration date) this position will give the trader. Explain.

b. If you didn't include the answer to this question for "a," include it now: if the stock price at expiration turns out to be higher all three strike prices, what will the payoff turn out to be? Explain why.

Reference no: EM132709985

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