Question: Option payoffs Suppose that Mr. Colleoni borrows the present value of $100, buys a six- month put option on stock Y with an exercise price

Option payoffs

Suppose that Mr. Colleoni borrows the present value of $100, buys a six- month put option on stock Y with an exercise price of $150, and sells a six-month put option on Y with an exercise price of $50.

a. Draw a position diagram showing the payoffs when the options expire.

b. Suggest two other combinations of loans, options, and the underlying stock that would give Mr. Colleoni the same payoffs.

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