Consider $3-$month options with premium

and the effective annual interest rate $8\mathrm{.}33\%.$

Write down the payoff function, profit function

and draw a profit diagram for the following

options:

$($i$).$ Straddle: buy a call and a put

with strike $40.$

$($will be good for both up$/$down but high

premium$).$

$($ii$)$ Strangle: buy $35-$strike put and $45-$strike

call

$($iii$)$ Symmetric butterfly spreads:

written $40-$strike straddle $+$ buy $35-$strike

put and $45-$strike call.