Company A with 3 months to maturity, a trader sketched the following two payoff diagrams as the building block of his trade. From your understanding of the mechanics of options trading, (i) carefully explains the payoff diagrams constructed by the trader and the trader’s overall portfolio position, (ii) construct the Profit & Loss table at maturity for the trader’s portfolio.

 

Transcribed Image Text:

Payoff O Payoff 0 K₁ K K₂ ST ST 0 Payoff O Payoff 0 K₁ K K₂ ST ST 0

Answer rating: 100% (QA)

1 BUY ONE PUT AT STRIKE PRICE K Assume K100 k190 K2110 PAYOFF FOR BUY 1 PUT WITh STRIKE 100 STPrice ... View the full answer