Question

Suppose you own a call option on Lockheed Martin stock with an exercise price of $50, and you also own a put option on the same stock with the same time to expiration with an exercise price of $45. A) Draw the payoff diagram for the call option and the put option on the expiration date. B) Draw the payoff diagram on the expiration date for the portfolio of the call and put options. C) Now consider a slightly different portfolio: You own a call option on the stock with an exercise price of $50, and you have written a put on the same stock with the same time to expiration but with an exercise price of $45. Draw the payoff diagram for this portfolio. {Hint: For all payoff diagrams, consider the payoffs in the following three stock price ranges: (i) stock price greater than $50, (ii) stock price less than $45, and (iii) stock price between $45 and $50.}