Refer to the data in the following table. Strike Price Put Price $30 ..........$1.00 $35 ..........$3.50 $40

Question:

Refer to the data in the following table.

$30 ..........$1.00

$35 ..........$3.50

$40 ..........$6.50

Suppose an investor purchases 1 put with X = $30 and one put with X = $40 and sells two puts with X = $35. Draw a payoff diagram for this position. In your diagram, show the gross payoff (ignoring the costs of buying and selling the options) and the net payoff. In what range of stock prices does the investor make a net profit? What is the investor’s maximum potential dollar profit and maximum potential dollar loss?

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.