Create a strategy that replicates the following payoff using only Call or Put options with different strikes. Payoff 15 10 5 0 -5 -10 -15 25 30 Solution: Using call options: Position long 1 x P(40) short 1 x P(30) short 2 x C(40) long 4 x C(45) short 1 x C(50) Total Construct the cashflow table of the strategy to verify its payoff. ST [0,30) 40 - ST ST-30 45 0 0 0 +10 J 55 60 STE 30, 40) ST [30,40) 40 - ST 0 0 0 0 40 - ST 70 ST Cashflow @T STE [40, 45) 0 0 2(40 - ST) 0 0 80-2ST STE [45, 50) ST E [50,00) 0 0 0 0 2(40-ST) 4(ST-45) 0 2ST 100 - 2(40-ST) 4(ST-45) 50 - ST ST-50