Suppose that Lisa Emerson owns a share of Zytex Chemical stock which is worth $100 per share.

Question:

Suppose that Lisa Emerson owns a share of Zytex Chemical stock which is worth $100 per share. Lisa purchases a put option on this stock with a strike price of $95 and she sells a call option with a strike price of $105. Plot the payoff diagram for Lisa’s new portfolio and explain how it relates to this chapter’s opening focus.

Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...