This spread involves positions in options with three different strike prices. It can be created by buying a call option with a relatively low strike price X1; buying a call option with a relatively high strike price X3; and selling two calls with a strike price, X2 halfway between X1 and X3. X2 can be thought of as being the current futures price. All options are on the same asset and have the same expiry date T. Option at Strike Price Strike price Premium when spread is created X1 $55 $11 X2 $60 $7 X3 $65 $5

1. Draw the terminal payoff of this particular spread using the information provided above.

2. Show how to "conceptually" create a similar payoff profile using PUT options (i.e. number of options at each strike price and positions for each option-long or short). Use a particular example of portfolio (strike prices and premia) to create a payoff profile that is similar to that of question 1:

(a) What option position in a put (long or short) is required, and at which strike price ? How many options? Draw. (b) What option position in a put (long or short) is required, and at which at strike price ? How many options? Draw. (c) What option position in a put (long or short) is required, and at which strike price ? How many options? Draw. Combine drawing with 2.a and 2.b. (d) What is the net cost to create this spread with puts? What is the maximum profit and loss on this spread? (e) When do you expect to use this strategy? Can you guess its name? And explain why?