A trader wants to construct a top vertical combination: she sells a call option with a strike price of $60 and a put option with a strike price of $40. Both options have the same maturity. The call costs $5 and the put costs $7.

Construct a table showing the payoff from the strategy. (3 pts)

Construct a table showing the profit from the strategy. (3 pts)

What is the profit/loss achieved on the strategy if the stock price at the option expiry is equal to S20? (1 pts)

What is the profit/loss achieved on the strategy if the stock price at the option expiry is equal to $50? (1 pts)

What is the profit/loss achieved on the strategy if the stock price at the option expiry is equal to S80? (1 pts)

What stock level(s) will result in zero profits? (2 pts)

Draw the profit diagram of such a strategy for different ranges of stock prices? (2 pts)

What is the possible risk that the trader is facing? (1 pt)