Question: Consider the following option portfolio whose components have the same maturity: A long call option with a strike of $25 and a premium of $5

Consider the following option portfolio whose components have the same maturity:

A long call option with a strike of $25 and a premium of $5

A short call option with a strike of $30 and a premium of $3

a.What is the name of this option strategy?

b.Why would you use such a strategy?

c.Draw the profit graph of this portfolio at expiration as a function of the spot price of the underlying asset (label as much as you can to ensure the diagram is to scale)

d.Considering only the total profit, identify when this strategy does better and when it does worse than simply buying the underlying asset

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